Debate over financial reform is heating up in Congress.
The banking lobbies are moving heaven and earth to bury any significant rollback of their vast economic and political power that brought the entire system to its knees, and produced the most serious recession since the Great Depression. They have spent over a million dollars per congressperson in the past year alone, lobbying to prevent change. Goldman-Sachs and J.P. Morgan – two of the principal culprits of the binge in useless speculation – are more powerful than ever since the bailout.
In this context, the Supreme Court’s right-wing decision granting corporations the rights of citizens in political campaigns is NOT an accident, considering the mounting outrage the banks are desperately trying to block or divert. Since there are few reform issues in any arena (environment, tax policy, peace, employee free choice, etc) that do not impinge on the power of finance capital, it’s fair to say that the entire progressive agenda hinges in large part on breaking the stranglehold it has on our democratic institutions.
The banks cynically fund phony populist calls to “stop the bank bailouts” and “the deficits are going to ruin your grandchildren,” while actually striving to kill ANY real reform. (Reminds me of an old Vermont farmer moralism, which goes: “You know that little white speck on the top of chicken shit?? That’s chicken shit too!” This could well apply to GOP Rep. John Boehner railing against bank bailouts while being funded by banks.)
The crisis is visible to all now. However, it is really the culmination of 35 years of an ever-increasing percentage of national wealth being diverted from real economic development, and from the incomes and standard of living of working people, toward Wall Street.
Which brings us, in this writer’s view, to the sole test by which we should judge the success or failure of financial reform: will the economic and political power of the financial sector get larger, or smaller, as a result? Put another way, will the economy get redirected toward green technology, high-tech industries and services, investment in the abilities and productivity of our people – or will it again succumb to domination by parasitic endeavors that will only aggravate inequality and hasten the arrival of another, perhaps bigger catastrophe?
There is actually wide agreement from the center to the left in the political spectrum on many aspects of reform, with only one serious point of contention, namely, should we rely on revamped regulation, or must the risky banking sectors simply be made smaller, as well as subject to more regulation and transparency? This writer comes down squarely on the latter position. The issues in the debate have been popularized by Paul Krugman (regulation, not size, is key) and Paul Volker (yes, regulate, but if you do not make them smaller, the banks will capture the regulators, as they have clearly done in the past). Krugman points to Canada where regulation worked, more or less, and the banking sector there has survived the crisis. Volker, however, the redoubtable former Fed chairman, KNOWS U.S. banks probably better than anyone.
Here’s the rest of the overhaul program, essentially a “do-over” of the past three decades of radical deregulation, that gets us pointed in the direction we MUST go:
1. The ratings agencies should be nationalized: The prime enablers of the crisis, their pay-for-play business model is a debacle. Their status as Nationally Recognized Statistical Rating Organizations (NRSRO) should be stripped. They should be nationalized.
2. Derivatives must be regulated like all financial products: Put derivatives on exchanges; require counter-party disclosure and transparent open interest reporting, as well as mandatory capital requirements for trading.
3. Regulate non-bank lenders like banks: The unregulated non-bank lenders were at the heart of this crisis. It doesn’t matter if you aren’t a depository institution; if you loan money, you must be regulated like any other bank PERIOD.
4. Eliminate “too big to fail” via a Volker-like proposal: Put caps on percentage of total U.S. assets allowed. Break up insolvent, incompetent megabanks – like Citi and Bank of America. Separate the depository banks from the investing houses.
5. Do not give the Federal Reserve MORE authority: Again – the danger is capture of the regulators by the banks! The Fed should focus on monetary policy.
6. Create an independent Consumer Financial Protection Agency to stop the endless frauds perpetrated by banks and brokers on credit cards, mortgages, etc.
7. Reform compensation: The system of privatized gains and socialized losses must be thwarted. Executive compensation is totally disconnected from their performance.
8. A transaction tax, as proposed by economist Dean Baker, the AFL-CIO and others, would raise significant revenues and discourage speculation while not interfering with “legitimate” investment.
These are, in the main, technical reforms. Their ability to sustain meaningful change, however, depends on the rising political power of working people and its progressive alliances.
CONTRIBUTOR
Comments