EDITORIAL

Another Step Forward

Now is the summer of our populist discontent. But we’d better get over it, or else this winter will be a disaster.

The Senate is preparing to finally pass the Wall Street reform bill. As Sen. Bernie Sanders (I-Vt.) said, “it doesn’t go anywhere as far as it should” to break up the huge financial institutions or to limit interest rates that banks may charge credit card customers, but it is “a step forward” and has some important regulation of the financial industry.

It’s a similar caveat that we heard earlier this year after passage of the health care reform, and last year after the passage of the economic stimulus package.

Progressive activists have watched in frustration as Democratic leaders have made concessions to get initiatives through the Senate. That is especially frustrating since Democrats for much of last year claimed a nominal majority of 60 votes. But Majority Leader Harry Reid had all sorts of trouble keeping his 58 Dems and two independents in line. The Republican minority decided last year that they would obstruct virtually everything President Obama proposed and they have been very successful in their sabotage. The GOP has made unprecedented use of procedural rules and filibusters to require 60 votes and weeks of negotiation for any substantial action. They move virtually in lockstep, with a discipline that Reid could only dream of. It’s the sort of discipline that corporate money can buy and enforce. That corporate money can usually lure at least a few Democrats to help the GOP water down populist initiatives.

Bankers flexed their muscles in April 2009 when they peeled off a dozen Democrats to side with the Republicans to kill Sen. Dick Durbin (D-Ill.)’s “cramdown amendment” that would have allowed bankruptcy judges to modify mortgage terms to help troubled homeowners keep their houses. Durbin’s amendment was rejected 45-51 and he noted that even after the banking crisis the financial industry remained the most powerful lobby on Capitol Hill. “And they frankly own the place,” he said.

The same dynamic worked in the health care reform negotiations, when Democratic leaders infuriated progressive activists with their refusal to consider a “single-payer” plan, such as expanding Medicare to cover everybody. A compromise to allow people to buy into Medicare or provide some other “public option” also died in the face of opposition from corporate Dems such as Mary Landrieu (La.), Blanche Lincoln (Ark.) and Ben Nelson (Neb.) as well as independent Joe Lieberman (Conn.).

We eventually got a health care reform bill that, for all its compromises to the insurance and pharmaceutical industries, establishes a government obligation to provide health care, regulates health insurance companies and will help working families find affordable insurance. Again, not as much as we hoped, but a good start.

The financial reform bill once again has matched the people’s interests against the monied interests. If the populists didn’t win on all points, at least they got some licks in. We won a few (such as Sen. Bernie Sanders’ Federal Reserve audit, Sen. Al Franken’s credit rating agency reform and Sen. Dick Durbin’s limits on debit card fees), we lost a few (such as Sen. Sherrod Brown’s attempt to break up “too big to fail” banks, Sen. Byron Dorgan’s attempt to ban “naked credit default swaps” and Sen. Sheldon Whitehouse’s attempt to let states regulate usurious lenders) and many others never got a vote, but after months of wrangling Congress ended up producing what Elizabeth Warren, chair of the Congressional Oversight Panel on the banking bailout called “the strongest set of Wall Street reforms in three generations.”

As outlined by Americans for Financial Reform, a coalition of consumer, public-interest, investor, retiree, labor, religious and business groups, the reforms include:

• A Consumer Financial Protection Bureau that will give consumers an independent advocate on complaints relating to mortgages, payday loans and checking accounts. Car dealers — the least-trusted, most-complained-about businesses in most states — managed to win exemption from federal oversight, but credit cards and mortgages will be required to offer terms in language borrowers can understand. The bill also offers help for those abused by predatory lenders and limits banks from charging hefty fees for debit-card purchases. “They created a strong, independent consumer agency that will have the tools to rein in industry tricks and traps and to cut out the fine print,” Warren said. “For the first time, there will be a financial regulator in Washington watching out for families instead of banks.”

• Shining a light on shadow markets: The $600 trillion derivatives market will operate in the open, so regulators can catch problems, such as credit default swaps that brought down the economy.

• Preventing taxpayer bailouts: The government will have the authority to step in and safely shut down any failing financial firm, not just banks, instead of propping them up with taxpayer money. A new council of regulators will monitor systemwide risks and advise the Federal Reserve Board.

• Reining in the Wall Street Casino: The “Volcker Rule” ensures that banks do not make risky “proprietary” bets for their own accounts with taxpayer-backed depository funds and limits investment in private funds. Banks will have to separate some of their derivatives trading operations into affiliates.

• Mortgage reform: For the first time, lenders are prohibited from making loans that borrowers cannot repay and they are prohibited from steering people into high-rate loans when they qualify for lower rates. Consumers also are protected from abusive loan fees and penalties for prepaying.

• Investor protections: Shareholders will have new tools to hold corporate management accountable, including a voice on executive compensation decisions. Brokers will have to act in the best interests of their customers.

• Holding credit rating agencies accountable: For the first time, the SEC will have an Office of Credit Ratings to keep an eye on rating agencies, which will be required to disclose the data and methodologies used in their ratings, as well as performance. Investors will be able to sue rating agencies for gross negligence in the rating.

• Open the Fed’s books: The biggest populist victory in the bill was the provision by Bernie Sanders to audit the Federal Reserve and requires the Fed to divulge the names of financial institutions that took more than $2 trillion in zero- or low-interest loans. The Fed also will have to disclose details of its open-market transactions and the loans it makes through its discount window directly to banks.

See more analysis of the bill at ourfinancialsecurity.org.

There are many compromises in the bill, but as Chris Bowers commented at MyDD.com (June 30), “There are a lot of victories in this bill. We need to pass those victories into law. If the bill is defeated by pro-Wall Street forces ... the only parts which will be defeated are the victories, while all of its shortcomings will remain in place. If it is defeated, the 1999 financial deregulation package will remain the basic framework under which our financial system operates, and we all know how that worked out. If it is defeated, no one will ever really take on the banks again, as their victory would demonstrate their invincibility.”

There is a base of about 20 populists in the Senate (see Dispatches) and another 25 or so who can be persuaded to side with the populists against the corporatists on occasion. That still leaves the populists six short of the majority and 15 short of cloture on a Republican filibuster. But the balance of power belongs to the centrists. This is not quite a populist Congress, but there is a populist base in the House and in the Senate and on a good day they can help pass a progressive bill with some populist nuggets in it. The Wall Street reform is one of those bills. Pass it now and work on electing more populists this fall. — JMC

From The Progressive Populist, August 1, 2010