The news from the world of finance has been incredibly depressing of late, as the big Wall Street banks keep winning round after round in their battles with regulators. The flurry of deals, which in part were closed pre-Jan 1st to allow the banks to clean up their books before the end of the year, were just one big win for the banks after another: the $10 billion Bank of America deal with Fannie Mae; the deal between 2 regulatory agencies and 10 major banks to come up with $3.3 billion dollars for 3.8 million homeowners; the international Basel 3 capitulation caving into everything the big international banks were asking for on regulation. Compared with the size of the crimes, the number of people who got badly hurt, and the amount of money these banks made off the fraudulent deals they committed, this money is pocket change, an insult to the millions of hard working families who have had their lives ripped apart by bank fraud.
Now even the Consumer Financial Protection Bureau, the one agency which has been rightly lauded for fighting for consumers on other issues since it got created due to Elizabeth’s Warren’s work, has caved into Wall Street demands on a new rule they just issued relating to mortgages and given the big banks a major edge against homeowners in legal issues going forward. People at Americans for Financial Reform and the other groups working on these issues tell me they are appalled by these new rules.
The best hope for investigating and prosecuting fraudulent bankers has been in the inter-agency task force co-chaired by NY AG Eric Schneiderman, but the DOJ has refused to give the task force the staff that it needed, and as a result things have been moving slower than molasses, and it is not at all clear at this point whether anything is going to come of it.
Media figures enamored of Wall Street think all this is a swell thing. WP writer Neil Irwin thinks it’s terrific because “every dollar a bank holds as part of its liquidity buffer is a dollar they are not lending out…as a loan to build a factory.” This was Obama’s argument in his first State Of The Union speech, where he talked about how he hated to bail out the banks but only by helping them would they be able to start making loans again so that the economy would recover. It has pretty much been Geithner’s entire philosophy while at Treasury: anything that gets in the way of the big banks’ ability to make money will hurt the economy. The problem is that while the big banks have been swimming in money most of the last 4 years, making record profits and handing out record bonuses to execs in some years, the rest of the economy is flat. Small businesses are still having trouble getting loans, factory start-ups have been slow, housing remains weak even with its recent uptick, and in case nobody has noticed in a DC obsessed by deficits, unemployment is still appallingly high.
Here’s the other thing: if people steal money and commit fraud and never have to go to jail or pay any real penalty, they generally keep doing it. It is equally true of street criminals and Wall Street bankers. With a government that is doing nothing to prosecute these crimes, that is settling for light slap on the wrist settlements time and time again, and that is still allowing banks to get bigger and bigger, what exactly will stop future financial crises caused by big bank greed and fraud?
One other extremely important point here: this is also about the functioning of the day to day economy, not just occasional financial crises. When the financial sector is as big and powerful and corrupt as the American financial sector is, and when tax law and special interest loopholes are so weighted to the finance sector and speculative finance as they are today, it drains money out of the real economy- out of manufacturing, out of small business start-up loans, out of housing, out of construction, out of Main Street business and workers’ pocketbooks.
What is especially painful to a loyal Democrat like me is how much of the power of Wall Street has flourished on my party’s watch. I was proud to be a member of the Bill Clinton ’92 campaign and White House, we did a lot of good things the years he was President- progressive budget packages, S-CHIP, a minimum wage increase, the Brady Bill and Assault Weapons Ban, Family and Medical Leave, etc. I was proud to support Barack Obama in his 2 races, and be a part of his transition team. He too has accomplished many things I am proud of: a progressive stimulus bill, Obamacare, the CFPB, the Lily Ledbetter Act, the end of Don’t Ask Don’t Tell, and many others. But these Presidents have a blind spot the size of the Bank of America building about Wall Street, and have appointed 3 Treasury Secretaries and other financial regulators who have done way more for Wall Street than for working families.
Which brings me to Jack Lew. Personally, I am quite biased toward Jack Lew, as he and I worked together on health care reform for Hillary Clinton in the 1993-94. Before he worked on health care reform he worked with my dear friend and mentor the late Eli Segal on creating AmeriCorps. He was the intellectual father of the S-CHIP program. I found him to be a straight shooter with a good heart who was a tried and true heir to the politics of the man he worked for a few years, Tip O’Neill. He is certainly not, as some have described him, a protege of Bob Rubin. And as OMB director, he worked on budget issues not financial issues, so he doesn’t deserve the blame for truly god-awful bill that repealed Glass-Steagall.
However, as fond as I am of Jack, he is not the progressive answer to the power of the big banks. He once said that financial deregulation had little to do with the financial collapse of 2008, which is very disappointing, and he certainly isn’t my style of a strong progressive in terms of taking on the power of Wall Street. (Of course, someone with my view about taking on the power of Wall Street would not be appointed by this President or confirmable by this Senate.) And regardless of Jack’s views, he will still be surrounded by what Jeff Connaughton in his book The Payoff: Why Wall Street Always Wins calls the Wall Street “blob”: the Treasury appointees who come from Wall Street and plan to return there after they leave; the Capitol Hill staffers who want high paid Wall Street jobs after they leave the Hill; the armies of Wall Street lawyers, lobbyists, political operatives, PR guys; the members of Congress whose campaigns are well-funded by those Wall Street denizens; the think tanks given huge Wall Street contributions to spout the party line.
I think Jack will be a better Treasury Secretary than Rubin, Summers, or Geithner. He may well be the best a financial reform activist like me could have hoped for given the alternatives. I hope so, because you never want your friends to sorely disappoint you. But it will take a renewed and impassioned movement to take on Wall Street and have a chance at lessening their economic stranglehold on the nation’s throat, and the nation’s political system. Having a champion like Elizabeth Warren in the Senate will help, but the rest of us who care about these issues will need to fight like cats and dogs to make anything happen where the rest of win rather than Wall Street.