written by Stephanie Remington and Ruth Robertson, great ANWF organizers in California.
Today is the day of our call-in days — please call — as they start to hear from us, they have to move. We’ve got a few days to get good reform – the details matter. The banks are spending a fortune lobbying congress to keep things the way they are, but the rest of us (on the receiving end of their catastrophic risk-taking and blatant fraud) outnumber them. We can’t lose sight of the public interest because we can get what we want by forcing their hand. Lincoln, Dodd, and Congress aren’t going to come back and say, “hey, you really changed our positions, activism really matters!”, but their omissions should are remiss.
Of course the problem with financial reform in the first place is that we’re tackling the entire system at once, including the small details. So many amendments are about very specific, obscure financial operations, which many people just don’t find that interesting. The details have hurt our fight for strong structural reform — everything is presented as and in one sense is complicated, some people just completely tune it out. Well, there are clear, overarching, very general, extremely structural solutions to the key issues leading to the financial crisis.
We only care about structural reforms that address key problems of financial crises:
1. First and foremost, Section 716 which addresses the problem of derivatives is the strongest and currently most possible reform we can push for. It’s gone through many cycles, and our readers have successfully fought through them. The good news is — it is still in the bill. It is the most contentious provision and it will define how strong the Democrats are on the big banks.
No other provision will accomplish what 716 does in terms of removing the subsidy enjoyed by a handful of institutions. Section 716 is the best chance for ending the ongoing threat to the taxpayer in the the current business of derivatives. At the heart of 716 is the structure it provides making a clear separation between the business of banking and that of marketing and trading derivatives. It provides a structure that protects the core financial functions of banks without extending those protections to cover highly risky derivatives transactions.
Section 716 will contribute to shrinking the size of individual institutions’ positions and the market itself by requiring that dealing and trading derivatives move to separately capitalized affiliates that do not have access to Fed lending facilities or FDIC guarantees. The huge capital reserves of institutions that dominate the U.S. market will no longer be available to support their outsized positions. The capital of derivatives affiliates, even if within the same holding company, will have to be much smaller, creating opportunities for non-bank firms to enter the market. Section 716 eliminates the risk the largest banks incur through marketing and trading OTC derivatives. It will help reduce the risk to the system as a whole by encouraging an expansion in the number of dealers in derivatives.
Blanche Lincoln (D-AR) is behind 716 and she won her Democratic primary on the strength of committing to tough new rules on Wall Street. Unfortunately, 716 suffered a couple of casualties that will be fatal to reform if left untreated. But, Sen. Maria Cantwell’s (D-WA) amendment (4086) addresses the loophole.
Lincoln wrote the whole of the derivatives section, including the “safe” proposals — she specified the means to end the biggest source of trouble with derivatives – that “the entire market operates in secret.” She required “central clearing,” a means of shining light on and watching over trades. This provision was undercut by language added by Democrats (Section 739, paragraphs A and B). This section would codify into law the now common practice of refusing to prosecute certain criminals for their demonstrably illegal activity. Section 739, paragraphs A and B, must be removed or voided by including Maria Cantwell’s amendment 4086 – it must be added for Lincoln’s section to work.
The Obama administration (notably, Treasury and Larry Summers), Senate Banking Chair Chris Dodd, and House Financial Services Chair Barney Frank propose a “substitute” (Merkley and Levin’s strengthened version of the Volcker rule). M-L must be in addition to, not instead of, Lincoln’s section. There’s no overlap between them; neither can substitute for the other. Mary Bottari of Bankster USA outlines five unique features of Lincoln’s section here.
2. The Volcker Rule: Zach Carter, Fellow at Campaign for America’s Future, reports that “The best version of President Obama’s signature Wall Street reform was an amendment written by Sens. Jeff Merkley, D-Ore., and Carl Levin, D-Mich. It was never voted on in the Senate and the House bill contains no version of any ban on proprietary trading by commercial banks. The Senate bill does include a weak version of the Volcker Rule that bank-friendly regulators can easily defang if they choose.” We need to push for inclusion of Merkley-Levin (SA 3931) in the conference and for negotiations that lead to a concrete ban on gambling with taxpayer money.
3. It is also important that we NOT forget about the Kanjorski amendment. While this amendment, introduced by Congressman Paul E. Kanjorski (D-PA), does not impose a hard size cap on banks, it proposes a number of potential objective criteria that could be used to determine when banks need to be broken up, including the “scope, scale, exposure, leverage, interconnectedness of financial activities, as well as size of the financial company.” It would greatly strengthen the hand of regulators and reinforce their power to break up those banks. As the amendment is written, a great deal of discretion would remain with the regulators, so it is much weaker than what is really needed. However, the Kanjorski amendment serves as a public reminder that “bailouts are bad” and it also increases the likelihood that management and directors would be replaced in a failing large bank.
4. An independent Consumer Financial Protection Agency: Dodd gutted an original version, but it can be restored. In its current form it wouldn’t actually protect consumers because, among other problems, it would be housed within the Fed which has yet to use its substantial, already-existing authority to protect consumers. As such it is the staying tuned to tip their hand.
Here’s a great video clip of an interview with Elizabeth Warren, Chair of the Congressional Oversight Panel created to oversee TARP bailout funds. Zach Carter reports that currently, “the House version of this agency is generally stronger than the Senate version, with more independence and broader authority. But the House version also exempts auto dealers from CFPA oversight which the Senate version does not.”
5. Capital and leverage: From Zach Carter: “Thanks to Sen. Susan Collins, R-Maine, the Senate bill contains the strongest language to toughen capital requirements at big banks, forcing them to have more money on hand to cushion against losses. There is no corresponding language in the House bill, but the House legislation does contain a related provision capping bank leverage–the amount of borrowed money banks can use to place bets in the capital markets casinos. How these good amendments fare in the
conference committee will significantly impact how the financial system functions over the next decade.” More from Rortybomb.
6. Fed Audit: Congressman Ron Paul has been called the key battler against central banking and against the Federal Reserve and is the author of the book, End the Fed. His supporters say he has worked tirelessly to bring accountability to what they call “the secretive bank”. The Congressman, who says he has worked to bring transparency to the Federal Reserve Bank for the past 30 years, introduced a bill to audit the Federal Reserve, but that bill did not make it into the Senate version of the Financial Reform Bill. Sen. David Vitter (R-LA) later reintroduced an amendment with the original Audit the Fed language, but the Senate rejected that amendment on May 11, 2010 by a 37-62 vote.
7. Rating agencies: From Zach Carter: “Sen. Al Franken pushed through an amendment that substantively changes the corrupt business model at rating agencies. Right now, rating agencies do not get paid by the investors who use their ratings, but by the very banks who are issuing those securities. Franken would end this system, having regulators select which rating agencies rate which securities, rather than the banks who issue the securities. The House bill largely leaves the rating agency business model unchanged.”
8. Swipe fees: From Zach Carter: “When you buy something at a store with a credit or debit card, Visa and Mastercard charge the store a fee. The store, in turn, charges you more for its products, making everything everybody buys more expensive. Sen. Dick Durbin, D-Ill., pushed through language cracking down on debit card fees, but there is no language addressing swipe fees of any kind in the House.”
9. Too big to fail: Sherrod Brown and Ted Kaufman introduced an outstanding bill that would have ended TBTF. It did not pass the Senate, but is crucial to success of financial reform.
Some of the main obstacles to achieving true reform are people in the Obama Administration, as well as bankers spending big money on Congress members to get their support. Along with our demands for specific language in the bill, we need to be pushing for the removal of Summers and Geithner and the appointment of a new Fed Chairman, which would effectively – and necessarily – get rid of Bernanke. These people, among a larger group of insiders and captive regulators, must be replaced with people with successful track records, who believe in true reform, and who will push for it instead of blocking it at every turn.
We have, in Joseph Stiglitz, Robert Reich, and Simon Johnson, three people whose expertise and commitment to reform make them ideal candidates to replace Summers and Geithner and move our nation toward a healthy economy–an economy that will never again be at the mercy of the big banks. For a new Fed Chairman Joseph Stiglitz, for Secretary of the Treasury Robert Reich, and for Obama’s Economic Advisor, Simon Johnson would make a true Dream Team.
Today, Mary Bottari put a funny twist on big banks. Here it is from Bankster USA:
“America’s Women to Dodd — Size Matters”
U.S. Senator Chris Dodd
Chairman Senate Banking, Housing and Urban Affairs
Dear Senator Dodd,
As women and as taxpayers, we are writing to you today to tell you that size matters.
Usually we love big. Big boxes of chocolate, big boxes of wine, big — well you know. But when it comes to big banks and big bank bailouts, it’s a whole different story.
As you get ready to take up bank reform in your committee next week, we need to talk.
When Congress voted to repeal depression-era Glass-Steagall protections, it put the big banks on Viagra. Since then they have had a big problem and it has lasted a lot longer than four hours.
The top five banks hold 50% of all bank assets. That hurts. They are simply too big for their britches. They have been ramping up those big bank fees, paying out big bank bonuses and spending big bucks on bank lobbyists to defeat reform.
We know what those big banks are telling you — “size doesn’t matter.” JP Morgan’s Jamie Dimon may be cute, but he is just a player. Big bank bravado only leads to big bank bailouts. After spending $4 trillion on the latest one, we simply can’t afford to get knocked up for another.
Corker is the problem in getting a bill out of the Banking Committee. We’re non-partisan here at AWNF, but so far Republicans have shown no real interest in bank reform. I guess they love socializing the risk of failing corporations after all.
Obstructionists instead of real proposals in Senate. Donny Shaw, Zephyr Teachout, Franz Hartl and I are at the first ever Break up the Banks conference and the first ever Too-big-to-fail conference. People in this conference have more ideas. Follow our tweets or facebook for updates.
One of the two main Republican negotiators Dodd had been working with in recent weeks had a different take, however. Bob Corker, R-Tenn., blamed the breakdown on pressure to get a bill through the committee before the Senate starts a final push for health care overhaul legislation.
“There’s no question that White House politics and health care have kept us from getting to the goal line,” Corker said.
The two sides were close to finalizing a deal on Wednesday, Corker maintained.
“Yesterday was one of the more bizarre days that I’ve experienced in the Senate. I began the day feeling like we were on the five yard line as far as finishing something that we began on Feb. 10. Never did I realize that health care would affect financial regulation,” he said.
Pearlstein of WPost makes a good summary of the stalemate in financial reform in Congress (not in the public mind you):
“There are many parties to thank for this stalemate: Liberal Democrats who insist that the only solution is to micromanage the financial services industry from Washington. Conservative Republicans who can’t accept that their deregulation went too far and can’t bear the thought of handing a legislative victory to President Obama. A financial services industry that says it supports regulatory reform in general but can’t agree to any specific changes. And regulators, in denial about their own failures, who remain determined to preserve their power and influence. “
Unfortunately, Pearlstein, a well-informed financial crisis writer shortchanges fundamental plans to real reform that were left out of the “new solution” by calling the solution attractive. The bill has no Volcker rule as recently pushed for by Obama and which would cap the size of banks at their current size and a stopping of some propietary trading; or that Glass-Steagall separation that keeps your money away from out-of-hand growth for big banks and extreme risk for the American taxpayer, and pushes for an undemocratized single regulator and passes by our most important crusader, Sheila Bair. Our litmus test for financial reform is still “nationalize, reorganize, decentralize” in the face of a crisis and in the construction of a financial industry in the present.
The shape of the regulator doesn’t matter, but its harmony, function, accountability and transparency.
Here’s what the compromis[ed] bill has:
“The compromise hammered out between Dodd and Corker would establish a single regulator of federally chartered banks with a dual mission and an independent source of funding, based on my conversations with several key players. One division would promulgate and enforce rules to protect consumers; the other would fulfill the traditional role of supervising banks for safety and soundness. Supervisors from both divisions would participate in the periodic reviews of bank operations, and any conflicts between the two would be resolved by the head of the agency.”
Why the change? Pearlstein says, “Some credit also goes to Obama, whose decision to embrace a more populist critique of Wall Street in recent weeks has rattled financial markets and persuaded big banks to push for a compromise rather than leave a cloud of regulatory uncertainty hanging over their heads. Apparently nothing focuses the mind of a Wall Street banker so much as the prospect of being forced to shut down his proprietary trading desk.”
The bill includes our “nationalize/receivership” rallying cry that would stop the bailouts to too big to fail banks and put them through an insolvency process in order to contain crises and keep capitalism on an even keel: “Dodd, Corker and Democratic Sen. Mark Warner of Virginia are putting the finishing touches on a plan reflecting these judgments. As they envision it, any time a big financial institution is threatened with insolvency, the government would be authorized to take it over and close it down in a bankruptcy-like process. The government could provide temporary loans to ensure an orderly liquidation process and prevent financial panic, but only to the extent that the loan would be repaid from proceeds of the sale of the bank’s assets. Although insured depositors would be protected, creditors, counterparties and investors would all suffer losses.”
Insider scoop from Politico: “Treasury Secretary Timothy Geithner meets with Senate Banking Committee Chairman Chris Dodd (D-Conn.) and Sen. Bob Corker (R-Tenn.) this afternoon to get a briefing on the progress they’ve made hammering out a compromise on financial regulatory reform and to strategize about how to move things forward.
MEANWHILE, SIGNS OF PROGRESS – POLITICO’s Victoria McGrane reports: The widespread consensus forming Tuesday was that the Dodd-Corker bill won’t be ready until next week – multiple industry sources heard Dodd tell his ranking Republican, Richard Shelby, as much. But the signs are auspicious for a bipartisan bill – and one that might actually be able to pass the Senate. Corker told POLITICO Tuesday that Republican support for the Dodd-Corker product is building behind the scenes.””
The banks are bigger than they’ve ever been, the only good financial reform bill is still nationalize, reorganize, decentralize, tuned for the different stages of a financial crisis and a steady economy.
As Simon Johnson and Peter Boone say, “As a result of the crisis and various government rescue efforts, the largest six banks in our economy now have total assets in excess of 63 percent of GDP (based on the latest available data).”
Volcker is a former Fed chief and served during the 80′s. He never fought for jobs first and foremost, though that is a mission of the Fed. These days he is making a come back by pushing for policies in the public interest. The Volcker proposal to break up the banks is gaining some steam, especially since Obama announced he wanted it as a part of regulatory plans going forward. Volcker had a hearing on his ideas and Dodd suprisingly supported them:
“The Obama administration has proposed bold steps to make the financial system less risky. We welcome those ideas,” said Dodd. “The first would prohibit banks – or financial institutions that contain banks – from owning, investing in, or sponsoring a hedge fund, a private equity fund, or any proprietary trading operation unrelated to serving its customers… I strongly support this proposal. I think it has great merit.”
“The second would be a cap on the market share of liabilities for the largest financial firms, which would supplement the current caps on the market share of their deposits. I think the administration is headed in the right direction with these two proposals,” Dodd continued.
Paul Volcker, Chairman of the President’s Economic Recovery Advisory Board and Former Chairman of the Federal Reserve, and Deputy Treasury Secretary Neal S. Wolin testified at the hearing.
The Committee will hold a second hearing on the proposals on Thursday.
Testimony and webcast will be available after the hearing here.
The debate over banks and banking came front and center this week. In his toughest language yet, President Barack Obama vowed to veto financial reform legislation that is not tough enough on Wall Street. “The lobbyists are already trying to kill it,” Obama told Congress in his State of the Union address. “Well, we cannot let them win this fight. And if the bill that ends up on my desk does not meet the test of real reform, I will send it back.”
The President’s rhetoric offers an important measure of progress. Now we can be assured that the political elite are paying attention to the poll numbers showing an unprecedented anger at the big banks and the Wall Street bailouts. Democrats are starting to figure out if they don’t take up this populist message and run with it in November, the Republicans will.
But the rest of the President’s speech and the other dramatic developments in the banking world this week indicate that Democratic actions are falling far short of their rhetoric, a pattern that voters are sure to notice.
First, the speech. Many had anticipated a big announcement on jobs. With jobless rates in the double digits and a projected 5-10 year haul to get employment back to normal levels, workers were hoping for something big and bold. Instead, Obama proposed $30 billion in TARP funds to get credit flowing to small businesses. $30 billion to put 16 million Americans back to work? $30 billion when the Wall Street bonus pool for a few thousand bankers was $140 billion this month? Democrats will live to regret this missed opportunity.
Also on Wednesday, U.S. Treasury Secretary Tim Geithner was called on the carpet once again by irate members of the House for his mishandling of the AIG bailout. To their credit, several Democrats asked the toughest questions. But Geithner bobbed and weaved and no knock-out punches were landed. This is a problem for the Democrats. The whole incident paints an ugly picture of the federal response to the financial meltdown, best described by Representative Edolphus Towns (D-NY): “The taxpayers were propping up the hollow shell of AIG by stuffing it with money and the rest of Wall Street came by and looted the corpse.”
On Thursday, Federal Reserve Chairman Ben Bernanke was reconfirmed by the Senate for another four year term. His nomination had been in trouble and a record number of senators voted no, but Obama stood by his man and pushed him through. The problem with Bernanke is best summarized by economist Simon Johnson: “Bernanke is an airline pilot who pulled off a miraculous landing, but didn’t do his preflight checks and doesn’t show any sign of being more careful in the future – thank him if you want, but why would you fly with him again (or the airline that keeps him on)?” While Bernanke may have saved Wall Street, he has shown little interest in using his power as Fed Chairman to aggressively aid Main Street. He is not the man for the job in these tough economic times and that will soon be apparent to the detriment of the Democrats who secured his confirmation.
Ultimately, however, the most important developments of the week were played out behind closed doors in the Senate. Senate Banking Chairman, Chris Dodd, made the decision some time ago to try to devise a bipartisan financial reform package. His package of reforms was then handed over to four bipartisan working groups. With thousands of bank lobbyists swarming the hill, it is no surprise that these groups are busily making the Dodd bill worse.
The derivatives language is being weakened and bankruptcy is emerging as the preferred method of unwinding financial institutions, which could leave taxpayers to foot the bill for this expensive procedure. To truly end the “too big to fail” problem and crack down on the reckless behavior of the biggest banks, we need strong, specific preventative measures such as leverage limits, capital and margin requirements, limits on counterparty exposures, a ban on proprietary trading and limits on bank size through a low cap on total liabilities. Even Obama’s signature reform, an independent consumer agency is in danger of being whittled down to a corner desk in a failed federal agency.
The President understands that the Wall Street bailout was “about as popular as a root canal.” But if Democrats continue to peddle this type of rhetoric while neglecting meaningful reform as they have done this week, the Republicans will run away with the anti-bailout message and with the election in November.
Crossposted from http://www.banksterusa.org/
The last week sent an important signal to all who think things are going back to where they were. The Great Financial Panic of 2008 and 2009 has altered our political economy in ways it will take years to understand. Combined with the structural changes we’ve been ignoring for years, we have the recipe for great volatility, for a long period of time. Events are indeed in the saddle.
There’s nothing like a few elected officials, or even one, losing office to set them on their own panic, and Democratic hysteria is growing. Each day, the White House mouths stronger opposition to the banks, and there is and has been absolutely no political downside for them on this. The Republicans remain incapable of even feigning opposition to Wall Street. However after a year, no one can say anything about this White House except watch what they do, not what they say. Just as importantly, it is the Congress that must legislate and our Congress remains firmly in the control of our corporatocracy. But, if you can lose in Massachusetts, you can lose anywhere. More Democrats are coming out against Bernanke, bringing down his confirmation would be a good thing. Chris Dodd is even issuing a financial apocalypse warning against opposing the confirmation.
To show Democrats are verging on full blown hysteria, Wall Street’s own lap-dog, Chuck Schumer is attacking the Supreme Court decision unleashing the corporate whip on our electoral system. I think the word for Mr. Schumer is chutzpah. There is no one elected official, and that includes Mr. Clinton, who more represents the capitulation of the Democratic party to Wall Street than Mr. Schumer. Senator Schumer has sixteen-million in the his campaign committee, over two million of that from the financial sector. When he headed the DSCC, Mr. Schumer made it reliant on Wall Street money, that way a Senator elected from South Dakota or New Mexico could be captured by Wall Street. All that hard work, wiped out by one Supreme Court decision, phew, now it’s not even safe in NY when you’re sitting on a pile of money.
I was reading John Hussman’s weekly analysis of the financial situation and he ended with one of Doctor King’s speeches from Birmingham in 1957. In the speech Dr. King references the historian Arnold Toynbee stating:
And Toynbee tells that out of the twenty-two civilizations that have risen up, all but about seven have found themselves in the junk heap of destruction. It is because civilizations fail to have sense enough to dim the lights. And if somebody doesn’t have
sense enough to turn on the dim and beautiful and powerful lights of love in this world, the whole of our civilization will be plunged into the abyss of destruction. And we will all end up destroyed because nobody had any sense on the highway of history.
I never read Toynbee, but it made me look him up. He has an interesting and extraordinarily relevant theory about the history of civilizations. It basically states every generation in a thriving civilization is met with challenges. When they step up to meet it, the civilization continues to thrive. Yet at certain point in each civilization’s history, one generation shirks from the challenge and instead begins consolidating existing wealth, living off their inheritance, instead of providing for the future. That’s where we are today. We are in the process of institutionalizing a Looting Class for the first time in American history. America’s a very wealthy place and it can provide wealth, on an ever decreasing level, for decades, centuries. However, events are now defining, and many events are in motion because we failed to rise to the challenges of the last couple decades. The great thing about events defining the times is they do so with very clear demarcations. Do each of us rise to face the challenge or do we look simply to protect and consolidate what we have. Which side are you on?
As a reigning bank-focused Senator is about to retire, a financial industry lobbysist said that the reigning Senator Dodd will now be free to “dance with the special interests that brought him to the dance in the first place. Us, his loyal donors in the banking community.” But, we pay his salary now and what will he do as financial regulatory reform comes up and the next couple of months is considered the last dance of his stay in Congress?
Now that he is retiring, the corrupt, liberal, head honcho senator, Chris Dodd is most likely going to concede even more to the big banks in his signature reform bill going through Congress. Some say he would fight harder for the public to leave a legacy, but no one yet knows. The Consumer Financial Protection Agency is a measure included in the bill and is credited the most with protecting consumers against predatory and usurious products, yet its survival is in question because the big banks want it out of the bill. Ridiculous, right?
Dodd and the rest of Congress need to stop their shenanigans and tell the big banks NO for once!
The big banks are probably right that Dodd wants to dance with them because they brought him to the dance in the first place. It’s a weird thing for them to say, but if it’s true, say hello to the next economic crisis coming up and even larger banks sucking up more public money.
BanksterUSA made a video asking Dodd who he will be taking to the last dance of his career — Jamie Dimon of J.P. Morgan Chase or Elizabeth Warren of the fight for consumer protection. You can help fill out Dodd’s dance card and tell him to not flirt with the idea of dancing with the big banks. He can do some good and leave a legacy or he can just get super rich and gut the country at the same time.
It’s pretty clear that he will become a big bank lobbyist himself when he retires –he has been a recipient of some of the highest amounts of lobbyist cash and big bank political contributions, he also got a deal on his mortgage for his political power. What else is a man like that going to do because he can’t get elected again in 2010 and is forced to retire and loves the silent ring of A LOT of money in the bank?
Well, we can’t stop him from doing what he desires after he is out of office, but what about not helping the big banks on taxpayer dollars? Dodd, we pay for your pitifully small $200,000 salary. Do what we say. Sign the petition here.