Time to take a stand and fight the enemies of financial services regulatory reform

Posted by AzBlueMeanie:

Director Ron Howard brought together the Saturday Night Live cast members who portrayed our presidents on SNL over the years (he asked Jim Carrey to play Ronald Reagan) to make this ad in support of the Consumer Financial Protection Agency on behalf of Main Street Brigade.

The concentration of the nation's wealth in the hands of the financial services sector, the "smartest guys in the room" who nearly destroyed the world's financial markets and economy with their casino capitalism and risky Ponzi scheme investment devices is why an independent consumer regulatory agency with the power of criminal enforcement is necessary. Can you name any of the titans of Wall Street who have been prosecuted for their fraud, besides Bernie Madoff? Anyone? That's what I thought. These bastards just collected their millions of dollars in bonuses for having pushed the world to the brink of economic collapse.

Just how much of the nation's wealth is concentrated in the hands of Wall Street bankers and financiers? Washington's Blog: 

You know the big banks have gotten bigger.

As Rolfe Winkler noted last September:

For the big have gotten even bigger since the start of the financial crisis. At the end of 2007, the Big Four banks — Citigroup, JPMorgan Chase, Bank of America and Wells Fargo — held 32 percent of all deposits in FDIC-insured institutions. As of June 30th, it was 39 percent.

(If the image doesn’t load, click here.)

But Simon Johnson gives an even broader perspective on how big the too big to fails have gotten:

Fifteen years ago, the combined assets of our six biggest banks totaled 17 percent of our GDP. By 2006, that number was 55 percent. Right now, it stands at 63 percent.

Johnson also points out that:

The big four have half of the market for mortgages and two-thirds of the market for credit cards. Five banks have over 95 percent of the market for over-the-counter derivatives. Three U.S. banks have over 40 percent of the global market for stock underwriting.

As I've previously noted, the government created the mega-giants (they are not the product of free market competition), and their very size destroys the real economy like a massive black hole destroys the matter around it.

And as Johnson and many others have pointed out, the very size of the giant banks enables them to easily capture politicians … about as easily as the Great Attractor captures galaxies.

Where is "Trust Buster" Teddy Roosevelt when we need him most? The problem, once again, lies in the dysfunctional U.S. Senate, the millionaire boys and girls club whose friends and neighbors are the very titans of Wall Street from whom they are supposed to be protecting the American people. Is the Senate Bungling Its Wall Street Crackdown? | Mother Jones:

[A]s Sen. Chris Dodd (D-Conn.), chair of the Senate banking committee, prepares to release his proposal for financial reform this week, House lawmakers who have worked on the issue tell Mother Jones they're worried that the talks will once again paralyze the Senate and produce only flimsy restrictions on financial firms.

Exhibit A for these anxious House lawmakers is the battle for a Consumer Financial Protection Agency, arguably the lifeblood of any financial overhaul. The CFPA, to borrow an analogy, would protect consumers from subprime mortgages and unfair credit card policies in much the same way as the Consumer Product Safety Commission scrutinizes faulty toasters and dangerous toys. It's an essential piece of the puzzle that experts say would rein in the predatory practices and disastrous products that toppled the housing industry and dragged the economy down with it.

In December, the House's major financial reform bill featured such a stand-alone consumer protection agency. But in the Senate, the CFPA has run into serious trouble. Senators like Richard Shelby (R-Ala.), the banking committee's ranking Republican, and other GOP colleagues have sought to neuter or outright kill the proposal for an independent body, suggesting that a consumer agency could instead be folded into an existing department, like the Treasury. Even Dodd, who's led the Senate's negotiations for months, had expressed doubt earlier this year whether a CFPA could make it into the final legislation. And now that Shelby has reportedly rejoined the Senate's main talks, the fate of an independent CFPA is even further in doubt. So contentious is the CFPA that it's been cast lately as financial reform's "public option," threatening to derail the entire bill.

* * *

"I am concerned about the consumer protection agency," Rep. Barney Frank (D-Mass.), chair of the House financial services committee and an architect of financial reform, says. "It's a deal-breaker if we don't have consumer protection."

The main source of resistance to the CFPA throughout Congress, the senior House Democratic lawmaker explains, is the powerful financial services community, its army of lobbyists, and the "stinking culture of money and fundraising." "What you're seeing is the influence of this powerful industry on the Senate that is not only fighting the consumer protection agency but fighting against the Obama plan to tax the big banks, and so on," the senior Democratic representative says. Lawmakers in both the House and Senate, the House member adds, don't want to crack down on the big banks and lenders. The lawmaker points to the relatively new Financial Crisis Inquiry Commission created to study the roots of the meltdown, and questioned why the House and Senate weren't themselves doing the work of that panel. "Why didn't we bring in Goldman Sachs? Why didn't we bring in Wells Fargo? Why didn't we bring them in and grill them?" this lawmaker says. "I suspect that there are too many people who wanted to avoid having to take them on."

* * *

Rep. Paul Kanjorski (D-Penn.), a senior member of the House financial services committee who played a major role crafting the House's reform bill, says … he thinks major legislation could still emerge from the Senate. "My own feeling," he adds, "is that everybody recognizes that we have to do something in financial service reform."

But Rep. Brad Sherman (D-Calif.), who figured prominently in the House's financial reform talks… for one, is skeptical of that view. Deadlock, he laments, is a "hallmark of the current American government," adding that "it's going to be very hard to pass anything through the Senate that any of the interest holders object to." Asked for his prediction of what a final financial reform bill might look like, Sherman deadpans, "The most likely outcome is two parts House financial bill, one part water."

All of this led economist Paul Krugman to lament in a recent column Financial Reform Endgame:

So here’s the situation. We’ve been through the second-worst financial crisis in the history of the world, and we’ve barely begun to recover: 29 million Americans either can’t find jobs or can’t find full-time work. Yet all momentum for serious banking reform has been lost. The question now seems to be whether we’ll get a watered-down bill or no bill at all. And I hate to say this, but the second option is starting to look preferable.

The problem, not too surprisingly, lies in the Senate, and mainly, though not entirely, with Republicans. The House has already passed a fairly strong reform bill, more or less along the lines proposed by the Obama administration, and the Senate could probably do the same if it operated on the principle of majority rule. But it doesn’t — and when you combine near-universal Republican opposition to serious reform with the wavering of some Democrats, prospects look bleak.

* * *

House Republicans, offering their alternative proposal, claimed that they would end banking excesses by introducing “market discipline” — basically, by promising not to rescue banks in the future.

But that’s a fantasy. For one thing, governments always, when push comes to shove, end up rescuing key financial institutions in a crisis. And more broadly, relying on the magic of the market to keep banks safe has always been a path to disaster. Even Adam Smith knew that: he may have been the father of free-market economics, but he argued that bank regulation was as necessary as fire codes on urban buildings, and called for a ban on high-risk, high-interest lending, the 18th-century version of subprime. And the lesson has been confirmed again and again, from the Panic of 1873 to Iceland today.

* * *

There are times when even a highly imperfect reform is much better than nothing; this is very much the case for health care. But financial reform is different. An imperfect health care bill can be revised in the light of experience, and if Democrats pass the current plan there will be steady pressure to make it better. A weak financial reform, by contrast, wouldn’t be tested until the next big crisis. All it would do is create a false sense of security and a fig leaf for politicians opposed to any serious action — then fail in the clinch.

Better, then, to take a stand, and put the enemies of reform on the spot. And by all means let’s highlight the dispute over a proposed Consumer Financial Protection Agency.

There’s no question that consumers need much better protection. The late Edward Gramlich — a Federal Reserve official who tried in vain to get Alan Greenspan to act against predatory lending — summarized the case perfectly back in 2007: “Why are the most risky loan products sold to the least sophisticated borrowers? The question answers itself — the least sophisticated borrowers are probably duped into taking these products.”

Is it important that this protection be provided by an independent agency? It must be, or lobbyists wouldn’t be campaigning so hard to prevent that agency’s creation.

And it’s not hard to see why. Some have argued that the job of protecting consumers can and should be done either by the Fed or — as in one compromise that at this point seems unlikely — by a unit within the Treasury Department. But remember, not that long ago Mr. Greenspan was Fed chairman and John Snow was Treasury secretary. Case closed. The only way consumers will be protected under future anti-regulation administrations — and believe me, given the power of the financial lobby, there will be such administrations — is if there’s an agency whose whole reason for being is to police bank abuses.

In summary, then, it’s time to draw a line in the sand. No reform, coupled with a campaign to name and shame the people responsible, is better than a cosmetic reform that just covers up failure to act.

Sens. Jon Kyl and John McCain are wholly-owned subsidiaries of the financial services sector. They will vote against the CFPA and any financial services regulation. They should be publicly shamed for being the prostitutes they are. If you are going to call senators, call the corporatist Democrats who are enabling the Republican obstruction of financial services regulatory reform in the Senate.