Financial Reform: We Can’t Afford To Lose

Finance/Insurance/Real Estate 2010 election cycle so far: $$85,064,470. (2008 cycle: $476 million, 2006, $260 million)
Lobbying: $336.9 million in 2009; $459,8 million in 2008.

Loans Commercial banks September 2009 $6.537 trillion; September 2008, $6.942 trillion; September 2007, $6.380 trillion

“There’s a lot of populism going on in this country right now, and I’m tired of it.”

—Sen. Judd Gregg, R-N.H., in an interview on CNBC January 25

Well, thanks to a Supreme Court conservative majority engaging in full-throttle corporatist activism, conservative political leaders using the results of the Massachusetts Senate race to run amok with obstructionism, and Democrats on Capitol Hill with their tails tucked between their legs, populism—pandering and otherwise—could be squashed like a bug under a ton of brick-sized bundles of cash.

That is particularly true with regard to financial reform, the topic that drew Gregg’s derisive comment. In the first 11 months of 2009, the finance, insurance and real estate industry spent $336.9 million on lobbying; $37 million of that was spent by commercial banks. For the 2010 elections, the finance, insurance and real estate industry has already contributed $85 million to House and Senate candidates. And that was before the Supreme Court blew the lid off what corporations could spend to influence elections.

Those dollars are about to be deployed in a high-stakes campaign of fear and misinformation that could be far more dangerous than the “death panel” hysteria of last summer that poisoned the health care reform debate. Wall Street’s titans have not been chastened by the financial collapse they precipitated with their greed and recklessness, enabled by the deregulation-worshiping elected officials whose campaigns they financed. Instead, they are working overtime to reopen the casino; only this time the big Wall Street players are even bigger and thus have an even bigger gun to press against the temples of the American taxpayers when their bets once again go bad.

This madness must cease.

President Obama and Congress has more than the 2010 elections at stake in convincing working-class Americans that they will not be bought by Wall Street, even if, as the Supreme Court has allowed, Wall Street can spend unlimited cash to earn their fealty. The foundations of the economy are at peril if progressives lose the financial reform fight.

We all saw the conservative modus operendi at work in the 2008 Wall Street bailout; whether it was the semi-opaque Targeted Asset Relief Program (TARP) program or the downright secretive trillions of dollars that the Federal Reserve gave to troubled financial institutions: Public dollars given to the private sector with little to no assurance that those dollars would be used for a public benefit—in this case, loans to businesses so that they can hire or keep workers employed, and consumers so that they could do the prudent spending that would keep the economy humming without inflating a new bubble.

But banks, especially the largest institutions that received the most bailout money, used the time they were getting taxpayer aid to pad their balance sheets andnthose of their top executives. The Federal Deposit Insurance Corporation’s latest report on banking activity notes that commercial bank loan balances dropped nearly $500 million, to $6.537 trillion, in the year ending September 30. The Wall Street Journal, also looking at FDIC data, found that commercial and industrial loans, a category that includes business loans, fell to $1.28 trillion at the end of September, from $1.36 trillion at the end of June.

Meanwhile, the think tank Demos, in its latest report on the banking industry, found that banks are getting an increasing share of their profits “through a return to the kind of high-risk practices that produced the meltdown,” with the only difference being that “more of the capital for today’s high levels of trading and securities packaging comes from the taxpayers in the first place.”

When financial institutions are not busy playing Wall Street casino games, they are creating new ways to gouge consumers and businesses who rely on credit cards. Now that Congress has imposed common-sense rules on when credit card companies can raise interest rates—for example, banks can no longer double or triple your interest rate for a payment that’s only a day late, or engage in complex double-billing cycles designed to run up interest and other fees—card issuers rushed base interest rate hikes into place for many borrowers and are looking to reinstate annual fees and other charges. There are also the usurious fees banks charge merchants for accepting the card—as high as 2 percent of the cost of the good charged, even though the actual cost of processing a charge transaction is negligible.

Financial services is a growing share of the nation’s economy, but even before the financial crisis it was evident that there was a widening gulf between the fortunes being made on Wall Street and the millions upon millions of people on Main Street who were either treading water or falling behind. That gulf is unsustainable, but the elite who have managed to game both the financial system and the political system will ignore that reality as long as they can until populist anger turns into the kind of political action that restores the financial services industry’s role as servant of the Main Street economy, not the other way around.

Presidet Obama’s plan to partially restore the wall that historically existed between retail banking and high-risk trading, and to stifle further consolidation of the largest banks, is a beginning. The fear is, as was the case in health care and in the economic recovery package, a too-modest proposal will be whittled to something ineffectual by the time the banking industry lobbyists swarm Congress and business interests bombard the airwaves with disingenuous ads. What is needed is bold solutions that actually match the severity of the problem:

The nation’s largest banks should not merely be contained; they need to be actually shrunken.
There must be a consumer financial protection agency that can be a counterweight to the banking industry and the regulators that protect their interests.
The Federal Reserve should be required to disclose and be accountable for the taxpayer funds it uses to sustain the economy and its key players. There is a difference between Fed “independence” and unaccountability; a Fed chairman should be able to answer questions from Congress about what has been done with the people’s money.

Finally, this is a moral issue:


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