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 Timesop-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.