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The Fight for Financial Reform
These next few months are a time of reckoning.
Every so often in American political history, a window for change opens, and the combination of crisis, leadership, and political movement makes big, positive reforms possible.
That window is open now--but barely--and if we don't act quickly the protectors of the status quo (aka lobbyists, Republicans, and so-called moderate Democrats will succeed in slamming it shut again.
The needed reforms are clear: affordable health care for all; a targeted jobs program and a humane, effective way to quell the tsunami of foreclosures; and a reorganized, re-regulated Wall Street that gets back to the essential business of investing in the real economy.
When it comes to making crucial financial reforms, we face a determined, well-heeled opposition that will wage a fierce battle every step of the way. As Alan Blinder describes in a recent New York Times op-ed , "The money at stake is mind-boggling, and one financial industry after another will go to the mat to fight any provision that might hurt it." One crucial debate is over the proposed Consumer Financial Protection Agency (CFPA)--akin to the fight over the public option as part of health care reform.
The need for a CFPA couldn't be more clear. Right now, responsibility for consumer protection is divided among agencies whose primary concern is the safety and soundness of financial institutions. Further, financial institutions--if regulated at all--not only are a key source of funding for those regulators, but they can also choose which regulator they prefer. Elizabeth Warren, a Harvard Law Professor who also chairs the Congressional Oversight Panel, first developed the idea for a CFPA. She writes , "This regulatory arbitrage has triggered a race to the bottom among prudential regulators and has blocked real consumer protection..."
Warren describes the benefits of the CFPA as bringing "existing federal consumer regulation under one roof", and creating "a home in Washington for people who care about whether families are playing on a level field when they buy financial products.... It will focus on one, driving question: Are consumer financial products explained in a way that consumers can understand and that allows the market to work?" (It must also be said--what a better regulatory landscape we would have if Warren were at Treasury in some substantial way. Naomi Klein calls her "the anti-Summers"; Michael Moore suggests Warren as half of a future presidential ticket. )
The CFPA seems like a no-brainer, but as a recent House Financial Services Committee hearing demonstrated, opponents will say just about anything to kill this proposal.
"Defenders of the status quo have long tried to make financial regulatory reform sound complicated and dangerous," Warren explains. "The result has been lax standards and little oversight."
Even more threatening to reform efforts are the financial industries' deep pockets: McClatchy Newspapers reports, "The [US] Chamber [of Commerce] said it's spending about $2 million on ads, educational efforts and a grassroots campaign to kill the agency. It said that the grassroots effort has led to more than 23,000 letters sent to Congress to date."
CFPA proponents obviously don't have those kinds of resources. The public will need to be mobilized by its outrage, and as Blinder describes "short attention spans" and the "complex, arcane and...boring" nature of financial regulation, make mobilization an even greater challenge than usual.
That's why the 21st century version of the Pecora Commission--the Senate Banking investigation into the causes of the 1929 Crash named after the chief counsel, Ferdinand Pecora--is so critical. The Pecora Commission exposed the crimes and abuses that led to the stock market crash, galvanizing the public and thereby opening the door to new regulatory reforms. Today's Financial Crisis Inquiry Commission (FCIC) chaired by Phil Angelides was created by Congress and is charged with providing a historical account of what transpired to bring our economy to its knees. The Commission is comprised of six Democrats and four Republicans, and partisanship shouldn't be a problem. Those responsible for the deregulation frenzy and the casino economy are found on both sides of the aisle--there is plenty of blame to go around.
Campaign for America's Future co-director, Robert Borosage, writes, "The Angelides Commission--if it fearlessly lays out the facts, exposes the excesses, the deformed incentives, the frauds and crimes, that are at the root of the current crisis has the potential of playing a similar role to that of Pecora."
Indeed there is an opportunity for understanding what exactly got us into this mess and what is needed for a real recovery replete with smart and effective regulations. In addition to the CFPA, there will need to be new thinking and reform on derivatives, executive pay, credit rating agencies, systemic risk monitoring, the Community Reinvestment Act, Federal Reserve transparency--to name a few areas of concern!
If we don't enact commonsense reforms--what is the alternative?
More "mugging of the common good", as Borosage puts it, as well-funded, well-connected, powerful interests continue to benefit from a stacked deck while the rest of us fend for ourselves.
There was no New Deal without the unions and unemployed councils; without the activists and thinkers who--when FDR told them "go out and make me do it"--did just that. Now is the time to be organized and engaged--online and offline--to push the limits of President Obama's own politics and counter the forces of money which are, as always, obstacles to a people's recovery.
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34 Comments so far
Show AllSorry--I'm really sick of the "make me do it" argument. If President Obama actually cared what the people of this country want, he would not have ignored the 80% of us who were opposed to bank bailouts. People were speaking out loud and clear. They were ignored in last year's bailout vote and they were ignored with the appointment of a Wall St econ team.
I also don't see the CFPA as a "no-brainer" We have many regulatory agencies that didn't work. Barry Commoner once said you can't "regulate" environmental toxins, you either produce them or ban them. I'd say the same with any regulation.
It would make more sense to limit, if not the size of the banks, then the amount of the FDIC insurance per bank and limit FDIC insurance to the investment criteria followed by credit unions. Another thing to stop: mortgage selling. You should only be able to sell a mortgage under two circumstances-- bankruptcy proceedings, or the seller's assets are purchased outright.
Right on, cassandra. New Deal financial industry regulation needs to be restored immediately and the banks that are too big to fail need to be broken up before CFPA will be viable.
"We have many regulatory agencies that didn't work."
Tell me about it ! The DEA, CIA, FBI, FCC, FDA, etc... all come to mind.
Regulation in this country is a sick joke. All I have seen since the late 1990s was re-regulation in favor of Wall $treet and against Main Street.
Speaking of that new agency, we taxpayers will have to fork more money over to Uncle Sam either in the form of paying more taxes straight up or the usual slit-the-wrist approach of slashing critical public budgets and/or burdening the states.
Yes, Jennifer, the new shtick is make the taxpayer pay for everything--Did you notice we haven't heard a peep about a financial transaction tax to pay for any of this?
We're the few who will ever notice sadly. Back when the Department of Homeland Security was being created, I had these same worries and look at the results. It's bad enough that everytime I say that conservatives and liberals in Washington actually don't mind raising taxes stealthily and playing tickle and rob with our purses that I get scorned at. The funny thing was that back when DHS was getting ready to be created, I was once at a get together and there was a political discussion on homeland security. Everyone was supposedly "conservative" but when I talked like one by questioning where the funding would actually come from, the response was ugly. I wouldn't be surprised if the advocates of building another consumer agency were equally hostile.
Yes, I noticed. The only thing that would be a good start to deal with this lack of transparency in finance is obviously off the table.
"Sorry--I'm really sick of the "make me do it" argument."
I agree, this doesn't mean anything anymore, KVH. In fact, unlike FDR--it now appears to me, anyway--Obama presented this line as a DARE, not as an invitation for SUPPORT.
And I'm not interested in more name dropping regarding any "future presidential tickets". I want these mthr-fkers that are there NOW to do their fkng jobs TODAY.
The billions of taxpayer dollars Congress has given Wall Street and the trillions of taxpayer guaranteed dollars the Federal Reserve has made available to Wall Street allow Wall Street to use our money to bribe the Obama Regime and Congress to scuttle re-regulation.
I always thought KVH was tied to the corporate shills one way or another. My father always hated KVH because most of the time, all she would talk about is abortion in political terms which would rub people like my father off in the wrong direction. I later found out that all these people who get on the media really don't have any serious concerns for the lives of the poor/middle/working class and it doesn't matter that they're liberal or conservative. Believing Katrina Van Heuvel is like believing George Will's statement that he suddenly supports withdrawing from Afghanistan. It's very easy to know who to not trust but it's much harder to find who to trust. :(
Katrina lives in a stupidity vacuum. When the house of cards comes crashing down, her silver spoon and meal ticket will take a hike.
Fresh off the healthcare reform butt walloping, we pull our pants down again for a financial reform fight? No thanks. Dummy up and vote third party.
"Those responsible for the deregulation frenzy and the casino economy are found on both sides of the aisle--there is plenty of blame to go around."
The Gramm-Leach-Bliley Act of 1999 allowed "commercial banks" to also become "investment banks", taking depositors’ savings and using it to speculate on financial instruments (derivatives) that ultimately helped bring down the global economy.
When a government allows financial predators to take depositors’ money and invest it in credit default swaps and other risky instruments (without their written consent) to increase profit margins so their CEOs can walk away with $Millions and $Billions, there is clearly a problem within that government; a government whose members took an oath to "protect and defend" against all enemies.....foreign and domestic and provide "equal protection" under the law.
After $Trillions of taxpayers' dollars have been promised to keep the "too-big-to-fail" in business, isn't it obvious that "We the People", who have lost retirement funds and savings to these predators, have been betrayed under the laws of constitutional protection?
Return the Glass-Steagall Act of 1933 to stop this fraud!
"O, what a tangled web we weave, when first we practice to deceive!" –Sir Walter Scott
The greatest use of this deregulation was the merger of banks after the credit crisis. So if you believe in government intervention in the market as a way to save it and control it you should be thankful that the Glass-Steagall Act was repealed because it made things a lot easier for Congress last year.
Also, how exactly does the Glass-Steagall Act relate to the Credit Crisis? Subprime loans and structured collateral debt obligations have been around for decades. The original structured mortgage-backed securities were in fact created by New Deal government agencies like Fannie Mae. The securitization of mortgages was the eventual result of New Deal government intervention.
Also, the universal bank model, banks that combine banking and securities businesses, have been a part of the global economy for a decades. Banks were already moving towards this sort of consolidation in the US before the repeal in 1999 made it official. Most EU countries, including Germany, France, Switzerland, and the UK, as well as Canada do not have this sort of regulation. So why did they not have a similar crisis until now?
The crisis now is because we have a global economy that is the most leveraged in history. Both consumers and governments have spent far beyond their means and this debt must be deleveraged. If the universal banking model is the cause of the current crisis then you would expect countries like the US who have actually had the MOST strict regulation IN THE WORLD in this regard to be faring much better than countries like Canada which do not. But in actuality it is the reverse. So saying this regulation has anything to do with the crisis defies logic and even the most simple analysis. What seems much more likely is that how poorly a country is faring is based on their debt both private and public. And debt has always been a result of government intervention, whether increased public debt to fund Keynesian stimulus, manipulation of rates to encourage consumer spending, laws to promote major lifetime purchases like home and car ownership, and of course "corporate socialism" or the sort of government backing that leads to a great moral hazard particularly in the banking industry.
The crisis today is obviously created by debt and the government and its agencies have been the cause of creating an economy so highly leveraged on every level and one with so much moral hazard. They are not the solution.
Yes. Debt is at the core of all of this and interest rates should reflect that, rather than going to zero. But keeping things small spreads risk. You may not need Glass-Steagall, although Michael Rozeff, a retired libertarian finance professor, argues that if you are going to have FDIC insurance, fractional reserve banking, and SEC regulations you need it. Since I don't think the subsidy/regulatory structure is going away, as EF Schumacher said, "Small is Beautiful"
There'a also one "deregulation" I recently learned of from 1994 when they allowed national/interstate banking. Don't know if I have this right though as I didn't know we were limited to state banks before then. If I got this right, we should repeal the repeal.
ATLAW is probably a Libertarian.
He thinks banking regulations interfere with his liberties and make for an inefficient financial system, just as Alan Greenspan did before the crash. Greenspan repudiated this belief after the crash, but ATLAW charges ahead with it.
"The crisis today is obviously created by debt..."
Partly true.
The crisis today is a direct result of powerful financial entities not being held to account for contracts they entered into. The law of contracts has been seletively ignored for hedge funds and investment banks when it goes against them and selectively abused to defend usurious interest rates on financial products for the average person.
So yeah, we ended up with a lot of debt. Now the bribed congress wants to tax the common man to pay the elite's debts. I guess the elite don't have a crisis anymore, huh?
The common person is going bankrupt, losing his job and his credit rating. So, since he can't get anymore debt, and must pay down what he has, the common man's debt is also declining.
So, I guess after we bury all those who go hungry, die of lack of healthcare or being homeless, we can all say the "crisis" is over...
My point is that your attitude towards your fellow man is calloused. The real solution to this crisis is the humane treatment of humans by other humans. That means a BIG (basic income guarantee). A BIG would take away the "freedom" that powerful corporations have to force people to work for less than a living wage under the disengineous moniker of "the law of contracts". BIG would cost much, much less than all the susbsidies that the corporate welfare queens of energy, agriculture and transportation now get. It would stifle all predatory behavior because there wouldn't be any desperate people willing to do just about anything to eat (forget healthcare). This would be true freedom of choice but the rich go nuts just thinking about every common roach out there being his own man. We just can't have that in the good old USA.
First, if Glass-Steagall was in place, this mess would have never happened, so there would be no need for Congress to do anything. Second, contrary to what you've said, Glass-Steagall would provide greater transparency and a natural barrier before risky securities - the commercial banks would have to "sell" their loans to the investment banks for secularization, at that point the underwriter would have to evaluate the loan pool or else they would not make money (or even lose). The securitization deal occurs between two parties and is more or less public, with records kept by both sides. more importantly it is in the interest of the investment bank to set a fair if not lower price. This is a barrier to issuing bad securities. The repeal of the Act brought that barrier down, the banks could originate and sell the securities themselves, using their established name, set whatever prices they wanted and claim whatever quality they dreamed up. At each step of the process they extracted fees and bonuses for themselves. Citibank was the prime example of how the scheme worked, their salesmen were roaming around the poor neighborhoods offering subprime loans, then sold the garbage as securities, making money along the way. All that was leveraged with depositor money, which could never happen under Glass-Steagall. Your argument that CDOs existed before the repeal turns against you when we look at the low volumes of these securities before-repeal and their EXPLOSION after-repeal. Glass, Steagall and the Pecora commission knew what they were doing. BTW, in the 1920-es the same thing happened and this was the reason for passing the Act.
Some of the over-leveraging you talk about is also due to relaxed regulation, including other parts of the New Deal. This wouldn't be a big problem if we didn't have globalization... Unbalanced trade, the repeal of Glass-Steagall and unregulated derivatives are the worst offenders.
ATLAW October 4th, 2009 2:09 pm
"The greatest use of this deregulation was the merger of banks after the credit crisis. So if you believe in government intervention in the market as a way to save it and control it you should be thankful that the Glass-Steagall Act was repealed because it made things a lot easier for Congress last year."
Are you joking about the mergers? Anti-trust laws were created to prevent these predators from becoming "too-big-to-fail"; but like many other laws that were created to protect the citizens of this country, congress has been ignoring them or creating new ones over the past 30 years which have undermined these protections and destroyed competition.
Furthermore, in a so-called "free-market", the government should not have to intervene in markets to allegedly save the country. No business on this planet should be so large that taxpayers have to step in and save it to prevent the country from economic collapse!
If the jokers on Capitol Hill had left Glass-Steagall in place and followed the anti-trust laws on the books, we wouldn't be in the situation we are in today.
Sioux Rose
GAIL: Excellent post.
And of tangential relationship to this article: my younger daughter graduated with a degree in business and took a corporate job. At the tender age of 24 she was hustled into buying her first "piece" of real estate, a condo on the border of Boca Raton and Delrey Beach. This was at the height of the real estate bubble, as all around her people appeared to be getting rich by flipping properties. I was very afraid for her to "sign on the dotted line," but my children see me as someone who is not UP on the times, financially-speaking. They want to do their own thing.
In any case, her condo has lost more than 50% of its value. I believe the value may one day go back up, at least partially, but who would want to hold onto a mortgage when it's lost half its value due to no fault of the buyer's? She began telling me about some item known as a "short sale," which is contingent upon bank approval. She asked me if I was interested, but I shy away from properties that hold, in addition to a mortgage commitment the so-called maintenance fee, a fee that tends to go up inordinately without due notice.
As it turned out, I ran into a Florida tax attorney at lunch a few days ago and I mentioned this short sale "business." He told me that most don't realize that they will be HELD to the price differential, that is, the difference between the mortgage price and what it short sells for. In other words this $100,000 would be counted against my child as INCOME for INCOME TAX!
When Dodd said "the bankers own the place," here is another example. If people want to short out of these bad mortgages (which might have been rated lower across the board to keep persons in homes they would prefer to have kept, a strategy that would have retained a solid local property tax base), they will pay an enormous tax fee. I can see where my daughter is being given a crash course in where this greed-driven economy is headed; but it is heartbreaking to watch her get caught on the shoals of rabid corruption, as the current (or should I say currency) is designed to capsize these investments. And then of all hubris, to still hold "owners" to account!
I think this skit from Saturday Night Live a few years ago is very relevant:
http://www.nbc.com/saturday-night-live/video/clips/dont-buy-stuff/27169/
RichM, thank you for exposing this author and The Nation for what it has always been and continues to be. Just when I thought this author couldn't be lamer than before, she rubs more salt on our wounds by first preaching about window for change when she and The Nation shut that window last year by falling for Barry's pixy dust and trashing Nader and Mckinney. Then she wants to talk about creating another agnecy when the existing SEC along with Congress and the White House are abdicating their responsibilities that we the taxpayers paid them to do ?
Cassandra is also right on this "make me do it" facade. I'm sick and tired of pols saying "make me do it, blah-blah-blah" and then going behind the scenes and playing kissyface with Wall $treet ! It generally means that they're against us unless we somehow miraculously force them to do it.
Oh don't you worry KVH. Barry will fight for financial "reform" in favor of Wall $treet and against Main Street. And then you'll be dazed when the working class throw Obama and the Democrats out in 2010 and 2012 !
I actually fell for the Nation arguments in 2004, after the 4 years of Bush, and ended up holding my nose while I pulled the lever for Kerry. However, I voted for Kucinich in the primary, and then, in November, I voted 3rd party for all other slots. After the loss, I swore I would never do that again! And, I haven't.
For the most part, I don't read their publication -- except William Greider. Once in a while, he wimps out too, but he is someone who thoroughly understands all the workings of our economy, and his insight is too valuable to ignore.
Jennifer: I agree with your post.
When it comes to these well-known writers out there, it's hard to know who to trust anymore. Even amongst those who do sound serious, it's a toughie telling the genuine from the fakes. I have mixed feelings on Greider. Some of his articles I like and some I find sort of frustrating.
I might have voted for Kerry in 2004 had he not supported the war in Iraq, had his party not forced Nader off the ballots in several states, and had he not gone "centrist" on everything. Looking at the way Obama campaigned last year, Kerry's 2004 campaigning looks "liberal" in pale comparison.
Book recommendation: If you want to arm yourselves with facts phrased in clear comprehensible English about all this, read William Grieder's Come Home America. I got out of the library but, even though my job is slated to end November 13th, I'm going to buy it and memorize as much as my aging brain can hold.
First book I've ever recommended when I'm only a third of the way through it
http://williamgreider.com/comehomeamerica
thanks: I'll buy this and read it.
H.R.3126 - The Consumer Financial Protection Agency Act of 2009 is fine, but it will probably take quite some time to get it through the congress, if that's even possible.
The Glass-Steagal Act of 1933, which concerns basic bank regulation and which was, in a large part, killed by a deregulation-happy, bipartisan congress with the blessings of that devious Clinton fellow, might be dusted off and reinstated in full, in record time, by a motivated congress.
Better not to waste a lot of congressional time on CFPA just now. If they can't do something as simple as restore Glass-Steagal, then we'll know the administration is giving us the old smoke and mirror routine over financial reform, just as it is over health care, so we may as well forget about CFPA .
All KVH ever does is remind us of what the problem is and what needs to be done, but never does she offer any real solutions, or any sort of concrete game plan to right the wrongs she's so good at highlighting.
Note to all progressive/liberal pundits/journalists/etc:
Your choir doesn't not need any more laundry lists of the challenges we face - we are very well versed. And nobody from the 'other side of the aisle' is reading you, so there's no reason for the daily regurgitation.
More time on new and interesting problem solving, less on problem explaining.
"More time on new and interesting problem solving, less on problem explaining."
Sure Frank, so where do we gather to do this?
"That window is open now--but barely--and if we don't act quickly the protectors of the status quo (aka lobbyists, Republicans, and so-called moderate Democrats will succeed in slamming it shut again."
Katrina, let me shed a little light on this statement.
1) The window has opened because of the public outrage from a financial heist of epic proportions followed by depression level unemployment.
2) The protectors of the status quo have ALL their weight against that window and it won't close.
3) The pressure, dear gatekeeper Katrina, is in the other direction.
4) The window wants to be torn completely off the house.
5) Time is NOT on the side of the staus quoers; it's on the side of tarring and feathering. You know this. So they send you out to do a piece on the "urgency" of reform, no matter how paltry or piecemeal.
Bullshit, Katrina. Your "calculus of political viability" crap is in the crapper.
"That window is open now--but barely--and if we don't act quickly the protectors of the..."
The window is closed even for Obama" a you lady have been acting with pencils for decades now, thank you
Banks are around since kings impose them on - now we need back the exported jobs - and when is more time we need government having own money
"It will focus on one, driving question: Are consumer financial products explained in a way that consumers can understand and that allows the market to work?"
Instead of calling this a "driving question", I'd call it a "stupid question", because the "financial products" are garbage and the people shouldn't be buying them. It's interesting how the pseudo-left sings praise to progressive principles but when it comes time to actually practice those principles, poof, they embrace "business as usual", yet again. Hilarious!
Wall St.'s implosion should be the signal for USans to shift their individual exchange/association away from the power centers and toward their local communities. Do business with your neighbors, demand local production. Build your local economy and let the emerald city collapse.
Katrina continues to demonstrate her galactic stupidity. Obama is funding the fraud via TARP and his appointments of Guethnier and Summers who Micheal Moore described in his new film as the linchpin of the financial melt-down. It makes you wonder if the duo of Summers and Guethnier work for Obama or Obama works for them? Of course, poor little Katrina sees no evil, speaks no evil, or hears no evil when it comes to Obama. She has her frigging nose stuck so far up his rectum she cannot smell the dysfunction.