The Trouble with Democrats

The governing party faced an awkward dilemma. People were hurting and
furious at the government's generous bailouts for banks. But how could
the Democrats do something for the folks without upsetting their
friends and patrons in the banking industry? Democrats think they found
a way. They are enacting a series of measures described as
"breakthrough" reform and "unprecedented" defeat for the bankers. Only
these achievements are more accurately understood as "reform lite." The
house is on fire and Democrats brought a garden hose.

The Democratic Party is changing in some promising ways, but what's
impressive is how much it has not changed. Does that sound harsh? I
am relying on private judgments from Washington players regarded as the
"white hats" on this subject--consumer lobbyists and other
public-interest reformers, who for years have labored in frustration to
enact laws that would restore equity and honest relationships to the
out-of-control financial system. These organizations mostly endorse the
Democrats' efforts and celebrate their "victories." But a few minutes of
private conversation reveals their doubt and disappointment. "It's a
good bill," they will say, then after enumerating the shortcomings add,
"It's better than nothing."

"This has to be on background, OK?" one of the reformers said. "This
crisis brought down the world economy and yet Congress still hasn't
passed a bill making sure it doesn't happen again."

Julia Gordon, a lawyer with the Center for
Responsible Lending, did not seek anonymity. "We have reached the moment
to ask ourselves Rabbi Hillel's question: if
not now, when?" Gordon said. "I fear we are letting this crucial moment
pass without putting forward-looking rules in place to fundamentally
change how mortgages are made and prevent predatory lending. Plus, when
we look back at the foreclosure tsunami that devastated so many
families, we're going to be ashamed that we did not fix the bankruptcy
code to permit mortgage modification. That move alone could have
prevented more than a million foreclosures, and while I predict we will
revisit the issue in the future, it will be like closing the barn door
after the horse has died."

If not now, when? That question ought to haunt the Democratic Party and
President Obama, who has been missing in action himself on key issues.
Congressional Democrats are responding to this epic conflagration with
the same risk-avoidance tactics they learned during many years in
minority status. In those days, they could always blame right-wing
Republicans for blocking their good intentions. But whom do the Dems
blame now that they have the White House and fifty-nine votes in the
Senate
and a seventy-eight-seat majority in the House? Their standard
explanation for not doing more is, "We didn't have the votes." So when
might we expect Democrats to achieve more? When they have eighty votes
in the Senate?

The party's ideological intentions are being defined with greater
clarity in these new circumstances, and so are the President's. It's
still early, but the implications are ominous for other issues. If
Democrats are reluctant to disturb the power of other major interests,
it seems improbable that fundamental change will occur on healthcare,
energy conversion or the restoration of work and wages. The problem now
is the Democrats, not the Republicans. The party aids and protects its
free-roaming entrepreneurial politicians and does not punish those who
undermine the party's larger promises. When Republicans were in charge,
they enforced party loyalty with Stalinist discipline. Democrats are the
party of safe incumbents, weak convictions.

The much-celebrated "Credit Cardholders' Bill of Rights" is a fresh
example of how the Democratic Party tries to have it both ways--avoiding
the tough votes while mollifying the folks. The credit card reform
measure imposes new rules on the industry and does away with many of the
most outrageous gimmicks bankers use to extract more money from debtors.
Banks cannot raise interest rates retroactively on old credit card
balances or pile on hidden fees or fail to give advance notice for rate
increases. These and other changes are worthy.

The achievement seems less courageous if you know that Congress was
largely
ratifying the regulatory rules already adopted by the Federal Reserve
last year. Or that the legislation gives the industry another nine
months to gouge their customers before the new rules go into
effect. Or that Visa and MasterCard, Citigroup and JPMorgan Chase are
free to raise future interest rates to the sky--without limit. That is
the industry's intention, as bank lobbyists reported after the bill was
passed.

American Usury

One of the fundamental issues that party managers wished to avoid was
the scandal of American usury. Usury is the ancient sin of charging
inflated interest rates sure to ruin the borrowers. It is considered
immoral by Judaism, Christianity and Islam because usury involves the
powerful using their wealth to ensnare weak and defenseless borrowers.
The classic usurer offers an impossible choice that debtors cannot
easily refuse. If they reject the terms of the loan, they will not be
able to pay the rent or buy necessities. If they accept the usurious
interest rates, their debts will accumulate until they are bankrupted
(at which point the creditors claim their property). No civilized
society can endure in such conditions.

Usury used to be illegal in the United States but it was
"decriminalized" in 1980--the dawn of financial deregulation. A
Democratic president and Congress repealed all interest-rate controls
and the federal law prohibiting usury. Thirty years later, American
society is permeated with usurious practices--credit cards charging 30
percent and higher, subprime mortgages and other forms of predatory
lending, the notorious "payday" loans that charge desperate working
people an effective interest rate of 500 percent or more. Businesses,
especially smaller firms, are also prey to usury in less direct ways.

Needing credit to survive, they submit to the creditor's demands and are
often weakened as a result, shedding workers and services that shrink
customers and income.

The straightforward way to stop usury is to enact a hard legal limit on
the interest rates creditors can charge borrowers. In the House, several
legislators introduced interest-rate caps, but party leaders would not
let the issue get a roll call vote. Rep. Maurice Hinchey of New York and
co-sponsors proposed an interest-rate cap of 18 percent, the same
ceiling enacted years ago for credit unions. "Offering the amendment
raised a lot of anxiety on the part of a lot of people," Hinchey said.

"It was withdrawn because it had no possibility of success and it would
have put a number of people in a tough situation. We had to back off."

A roll call on usury would have compelled legislators to choose between
their constituents and their bankers. Rep. Donna Edwards of Maryland
proposed a tougher ceiling on interest rates, but the House rules
committee rejected her amendment. "Our constituents are so angry with
the banks," she observed, "siding with credit-card companies would not
be helpful to me, and I expect that's true in other districts." Bankers
are contributors, so this is what members call "a money vote." A
consumer
lobbyist explained. "Let's face it," he said. "The main reason lots of
members get on the House Financial Services Committee is because they
want to raise money from the financial industry."

In the Senate, Dick Durbin of Illinois, the majority whip who rounds up
votes for the party, introduced his own usury bill--a cap of 36 percent
including the non-interest fees and charges. Durbin's bill also
empowered state governments to set lower limits. The Consumer Federation
of America endorsed it, but the consumer lobbyists asked Durbin not to
have a roll call on his measure because it might reveal their weakness.

Nevertheless, the redoubtable Bernie Sanders of Vermont demanded a vote
on his bill--an interest-rate cap of 15 percent.

"When banks are charging 30 percent interest rates, they are not making
credit available," Sanders said. "They are engaged in loan sharking."
Sanders lost, 33 to 60. Twenty-one Democrats voted with the sharks.
Senators Carper, Cantwell, Byrd, Bingaman, Bayh, Baucus, Akaka, Warner,
Tester, Stabenow, Specter, Shaheen, Pryor, Ben Nelson, Bill Nelson,
Murray, Lincoln, Landrieu, Kaufman, Johnson, Hagan.

The scandal of "payday" lending is being confronted by numerous state
legislatures, but the issue stalled out in Congress. The industry
pursued a race-based lobbying strategy that targeted black and Hispanic
representatives with this pitch--poor people need these loans; don't
mess with them. Rep. Luis Gutierrez of Illinois proposed a bill that
usurers found acceptable--an interest rate cap of 390 percent.

Standing With the Sharks

Perhaps the most revealing moment for Democratic timidity was the Senate
roll call to authorize bankruptcy judges to intervene on home
foreclosures and reduce the burden for failing homeowners. If the
bankers refused to make a deal, the debtors could take them into
bankruptcy court and hope for better terms. This single reform would
shift the balance of power modestly from creditors to debtors and save
at least 1.5 million families from foreclosure, reformers estimated. The
measure passed easily in the House, but was defeated by the Senate.

Bankruptcy reform lost because twelve Democrats joined the Republicans
to
vote for bankers and against embattled families. Senators Baucus,
Bennet, Byrd, Carper, Dorgan, Johnson, Landrieu, Lincoln, Ben Nelson,
Pryor, Specter, Tester.

Dick Durbin could not conceal the bitter
aftertaste. He told a hometown radio interviewer: "Hard to believe in a
time when we're facing a banking crisis that many of the banks
created--they are still the most powerful lobby on Capitol Hill. And
frankly, they
own the place."

Durbin's disappointment may have included the former Illinois senator
whom he had championed for president. Barack Obama took a walk on
reform. Last year as a candidate, Obama declined to support the
bankruptcy provision for the financial-bailout legislation, but he
promised reform groups he would support it if elected. The White House
wouldn't let reformers include it in the stimulus package or in Obama's
first budget. The White House suggested the issue could proceed as a
stand-alone measure (guaranteed to fail). On this important reform, the
president stands with the sharks.

The Democratic Party ignores its left-liberal-progressive base with some
regularity because it knows it can. Politicians understand they will
suffer no consequences afterward. The galaxy of mediating
organizations, including organized labor, that surrounds and supports
the party may stomp and holler, but they do not attempt any
retribution that might alter their relationship with power. Reform
organizations will not withdraw their support, either money or
rank-and-file voters. Nor will they seek to punish any of the wayward
Democrats who regularly vote against them with opposition at the next
election. The "white hat" reformers are Washington insiders themselves,
with a seat at the table and influence on the substance of the party's
agenda. They do not want to put their status at risk. Politicians know
this from long experience. So do the reformers.

The warped dynamics of the Democratic Party may have sufficed when the
GOP was ascendant and the goal was restoring a Democratic majority. But
now the majority party resembles a dysfunctional family, badly in need
of outside intervention. I say this with sympathy, having known and
admired many of the reform activists for many years. Some of them are
suffering from a political version of the Stockholm syndrome. Their
good intentions are brutally compromised by identifying with the limited
imagination and nerve of the Democratic Party.

In some ways, the politicians are prisoners too--captives of the money
politics and the expensive mass-marketing that requires them to raise so
much money and thus rely on the moneyed interests. Representatives and
senators know how the system works and what they need to do to survive.
Now and then, they may try to win one for the folks, but mostly they are
resigned to the confinements of the status quo. So long as activist
groups will make no attempt to break out of this pattern or penalize
incumbents for disloyalty, the party will continue to stiff the
faithful.

Moral Awakening

Given all the adversities facing the country, I conclude that meaningful
"intervention" is plausible only if it originates with people at large
who are more distant from power. I envision the intrusion coming from
many "independent formations" free to ignore Washington's insider
routines and mobilized by citizens on behalf of their own convictions,
their common-sense ideas of what needs to be accomplished. This
alternative path is a central theme of my new book, Come Home,
America. I describe (somewhat wishfully) how self-directed
organizations might develop the power to break through regular politics
and overcome the usual barriers.

These groups could function, not as a third party nor as standard
"issue" advocates, but as a mixture of these capabilities. They could
act like free-roaming guerillas who educate and agitate; like a
political party that selectively destabilizes safe-seat incumbents by
entering party primaries or running independent challengers; like
a representative organization that can demand political relations
through
direct confrontations or even civil disobedience. This development
sounds implausible, I know, especially in Washington. But our crisis
demands a more aggressive response from citizens--something that
threatens the power of both parties and makes them insecure.

As it happens, a rough facsimile of what I envisioned is arising now in
the politics of financial reform. A network of fourteen community
organizations, based in cities from Boston to Washington, DC, and across
North America, has come together in alliance and intends to force a
moral awakening on
the narrow thinking of the status quo. These citizens are developing a
political-action agenda around one theme--usury--as the efficient
expression of the abuses and injustices associated with banking and
finance. These are interfaith organizations affiliated with the
Industrial Areas
Foundation and composed of citizens who are white and
black, affluent and working poor, whose local organizations are based in
churches and synagogues, Catholic, Protestant, Jewish, Muslim and
others.

Usually, their political action is local and succeeds regularly in
building relations with public officials that produce real change in
communities. This time, given the crisis, these IAF groups are
attempting something they have not done before--building the voice and
influence to join the national debate and change its terms. I sat in on
one of their organizing meetings near Baltimore and was asked to
contribute my views on the shape of the problem.

"Are you ready to be born again? And again? And again? Do you have the
imagination? Do you believe it?" The call was from the Rev. Hurmon
Hamilton of the Roxbury Presbyterian Church in Boston, and he inspired
the 100 or so community leaders. "Faith is the substance of things hoped
for," Hamilton declared, "the evidence of things unseen."

Outlawing Usury

The Rev. David Brawley of East Brooklyn Baptist described a preliminary
statement of basic principles. "Reasonable interest rates," he said. "In
this financial culture, the nation will return to a time-honored, indeed
ancient, practice: the law against usury. Financial institutions and
mechanisms that participate in this culture will agree to a maximum of 9
percent interest or so. This was the usual state-mandated rate before
the
repeal."

Brawley described other principles with radical implications. "The
lender holds the loan," he explained. "The financial institution that
makes a loan holds the loan for its duration. The borrower and lender
enter into a long-term relationship that ends when the loan is fully
repaid. This is the fundamental starting point for any return to
accountability." That statement of principle challenges the market
securitization of mortgages that falsely claimed to reduce risk by
dispersing it among many investors. The process instead left no one
responsible for sound lending and thus multiplied the costs of failure.

Brawley's final principle was perhaps most threatening to the existing
order. "The federal government insists on these core characteristics as
the criteria for all further bailout funding. Banks that wish to borrow
from the government must accept these simple standards [and] provide
consumers with an alternative to the current monopoly of financial
transactions dominated and still dictated by the same fifty financial
institutions that caused the crisis."

In other words, the social standard of usurious practices should define
which banks and financial firms are eligible to participate in all forms
of government aid and protection. Why should taxpayers finance the
usurers who are injuring the society? The government's undiscriminating
approach to aiding banks implicates everyone in supporting the usury. So
do the banks and brokerages that collect people's savings and channel
the money into usurious practices that produce greater returns by
ruining more borrowers. The moral standard poses difficult questions for
everyone, not just bankers and politicians.

Arnold Graf, national organizer for the IAF, argues that the moral
question
can lead people to confront a deeper debate about the future. "What is
the kind of society we want to have?" Graf asked. "That's really what we
want to talk about--transforming the society. We're not going to get
transformation form the president and Congress. It can only come from
the people themselves."

These IAF organizations expect to try different tactics to spread the
message and engage the people with power who make decisions. That means
directly confronting elected representatives but also the banking
institutions with famous names. The alliance hopes the moral principles
will mobilize people of faith but also students and workers and
investors. Following the example of the civil rights movement, people of
conscience have to find ways to turn up the heat on the established
order and
discomfort the silent citizens who are passive and indifferent. This
effort, Graf assumes, will probably take years, not months. Leaders of
the community organizations are aware of the risks. They are attempting
a leap into the unknown and they might fail. No one listens, nothing
changes. They accept the risk because they too have asked Hillel's
question. If not now, when?