EDITORIAL

Breaking Up is Hard to Do

It’s time (really past time) to break up Bank of America. The bank holding company has assets of $2.1 trillion, or 14% of the US gross domestic product, placing it second only to JPMorgan Chase in size. But after a series of disastrous acquisitions between 2006 and 2008, Bank of America’s stock value is now down to $70 billion. It faces tens of billions in liabilities for mortgage-related fraud, securities fraud and exposure to financial instability in Europe, and the company is woefully short of capital reserves.

In a petition to the Federal Reserve and the Financial Stability Oversight Council, Public Citizen noted that the regulators have authority under the Dodd-Frank Wall Street Reform and Consumer Protection Act to reform the bank into a set of smaller, simpler and safer institutions.

Public Citizen sent a separate letter to financial regulators, co-signed by 19 allies, that calls on regulators to investigate any threats posed by Bank of America or other large and complex financial institutions commonly known as “too big to fail” and to take all actions necessary to safeguard financial stability.

Bank of America received $45 billion from the Troubled Asset Relief Program in 2008 and 2009. It also received more than $1 trillion in loans from the Federal Reserve between 2007 and 2011, peaking at $91.4 billion in February 2009. “That financial support would have been unjustified absent the conclusion that a Bank of America failure would be too damaging to the financial system to permit. Since those bailouts, the bank’s systemic significance has not diminished,” Public Citizen said in the letter.

It has assets of $2.1 trillion, and $1 trillion in deposits, but it has been plagued by bad management decisions. Between 2006 and 2008, it acquired several other institutions, including Countrywide Financial, Merrill Lynch, MBNA, US Trust, and La Salle Bank. It grew 51% based on its acquisitions of Countrywide and Merrill Lynch alone. But Bank of America’s acquisitions have resulted in a massive destruction of value. The bank spent $148 billion on acquisitions from 1998 to 2011 but it is now worth $70 billion. Public Citizen noted that although Bank of America conducted a year’s worth of due diligence before acquiring Countrywide Financial, that $4 billion acquisition ultimately might cost Bank of America $60 billion.

“In its current form, Bank of America poses a grave threat to our economy. It is massive, complex and unstable — too big to manage and too big to regulate. Its assets are equal to roughly one-seventh of the US gross domestic product. If Bank of America goes down, it will take a sizable chunk of our economy down with it,” Rick Claypool of Public Citizen wrote in an appeal for public support to get the regulators to act.

Simply put, if Bank of America were the Farmers and Swineherds National Bank in Frostbite Falls, Minn., it long ago would have been taken over by the FDIC. (Of course, it probably would have been turned over to JPMorgan Chase & Co.)

As Claypool wrote, “It’s time to stop propping up and start breaking up.”

As much as the nation’s banking system needs fixing, a sober look indicates it’s not going to happen until it’s too late — again — because the people who own the banks and a substantial portion of Congress don’t want it fixed. And sometimes it’s hard to tell who the White House economic advisers are working for — the President and the People who elected him, or the economic advisers’ once and future employers on Wall Street.

The People need to clarify that Congress and the President, and his minions, work for them, and not the monied interests that finance elections. To make that point will require grassroots support of candidates who support a constitutional amendment to overturn the infamous Citizens United decision, which two years of practice has shown to be a disaster for democracy.

In 1860, Abe Lincoln spent the equivalent of $2.8 million (in 2012 dollars) to win the White House. In 2008 Barack Obama spent $730 million. This year Obama is expected to need more than $1 billion. He had raised $136 million through January. Obama has been criticized for reversing his position on “super PACs” and giving the green light to independent Democratic groups to raise funds to help counter the hundreds of millions of dollars of attack ads that right-wing super PACs are expected to air against Obama and the Democrats this fall. Karl Rove has announced plans to raise $240 million. The Koch Brothers and associates reportedly have pledged to spend more than $100 million and it’s fair to say that the Chamber of Commerce will spend as much.

The super PACs are the product of the Supreme Court’s 5-4 ruling two years ago in Citizens United v. the Federal Elections Commission that corporations have a constitutional right to spend whatever they want to influence elections.

“The ruling not only poisoned our political process,” Sen. Bernie Sanders, I-Vt., and Robert Weissman, president of Public Citizen, wrote in an op-ed in January. “It contaminated the legislative process. It cast a permanent chill over all policymaking. Will the merits or the money tip the balance when an issue comes before Congress? What do you think?”

In 2010, corporations poured hundreds of millions of dollars into super PACs and about half of the $300 million spent by independent groups — much of it on negative ads — came from undisclosed sources. The House switched to Republican control, and in 60 of the 75 congressional races in which seats changed hands, the independent groups backed the winners.

Super PACs this year have transformed the Republican presidential primary. Mitt Romney spent $19 million in January, which is formidable enough, while Newt Gingrich spent $6 million and Rick Santorum spent $5.2 million. But a super PAC backing Romney spent close to $14 million, a super PAC backing Gingrich spent $10 million and a super PAC backing Santorum spent $3 million.

A constitutional amendment is needed to overturn the Citizens United ruling. Sanders has proposed a Saving American Democracy Amendment in the Senate and Ted Deutch (D-Fla.) has a companion resolution in the House to establish that constitutional rights belong to real people, not for-profit corporations. The amendment would prohibit corporations from making election-related expenditures. It would clarify that Congress and states have the power to regulate campaign spending, overturning the doctrine that election contributions and expenditures constitute First Amendment-protected speech and therefore may be subject only to limited restrictions. And it would affirm that nothing in the amendment limits freedom of press.

The Sanders/Deutch amendment is one of a dozen that have been filed to deal with Citizens United and/or corporate personhood. (See the list at united4thepeople.org.) Any constitutional amendment faces steep obstacles, and they all are worth pursuing, but the Sanders/Deutch amendment is the most comprehensive and gives progressive populists a cause to fight not only the influence of money in politics but also the concept of civil rights for corporations. Get more information and express your support at sanders.senate.gov.

In the meantime, the Supreme Court may revisit the Citizens United decision when it reviews the Montana Supreme Court’s recent upholding of a ban on corporations funding independent ads in state races. Lyle Denniston of Scotusblog.com noted (Feb. 17) that Justice Ruth Bader Ginsburg, joined by Justice Stephen Breyer, supported the stay of the state court’s ruling, but Ginsburg expressed hope that the Montana case “will give the Court an opportunity to consider whether, in light of the huge sums currently deployed to buy candidates’ allegiance, Citizens United ... should continue to hold sway.”

That’s worth hoping for, but the five justices who voted for Citizens United are still on the Court. A constitutional amendment is needed for a permanent fix. — JMC

From The Progressive Populist, March 15, 2012