From an excitement standpoint, it's been a dizzying week. Is financial reform legislation going to be the most radical overhaul since the Great Depression? Has the gap between the haves and the have nots been decreasing? Or are we still going to face the same existential threats to our system after finreg that we have faced before it? Has the gap between the haves and have nots strengthened during the crisis? Will Elizabeth Warren oversee her idea for consumer protection or won't she?
Like any living person, I certainly enjoy the spectacle to a point. But it brings me back to what for me personally is the more pressing perspective. What are the outcomes, the substantive changes? In other words, if we take the view of those who are happy about this week, seeing some larger historical import, where does that leave us?
Here is what I would propose. The proof is in the pudding. If financial reform is a Big [...] Deal, then that means we can finally shed the financial industry from the government trough (this is a great overview from Source Watch). After being wards of the state since 2007, we can finally end all the various handouts and bailouts and backstops and discount windows and tax breaks and everything else upon which the financial industry has been wholly and completely dependent. This means the Federal Reserve, the Treasury Department, Housing and Urban Development, and the FDIC in particular.
Following are some specific examples of what it would mean, but this is not exhaustive.
- The firms who received payments through TARP via AIG and other vehicles at essentially 100 cents on the dollar need to pay back that money - with interest representative of the market rate at the end of 2008 and beginning of 2009.
- We can lift the unlimited government backstop from Fannie Mae and Freddie Mac.
- The Federal Reserve can end every program justified through its 'unusual and exigent circumstances' clause and similar powers.
- Taxpayers (particulary HUD) can stop guaranteeing virtually the entire residential home mortgage market. While they're at it, HUD could impose basic restrictions to get a government backstop, like putting at least 10% of your own money into the property and only financing loans worth up to 5 times the median household income in the zip code where the home is located. 20% and 4 times would be fantastic.
- The Fed can sell its asset-backed securities, particularly its mortgage-backed securities.
- We can pursue all legal and regulatory action without any further comments about 'destabilizing the system' or similar reasons to suspend normal disclosure due to a crisis situation, particularly related to transparency of public information, bailout details, and bankruptcy proceedings for poorly managed firms.
- Treasury can sell all its various equity, debt, and asset holdings it has accumulated. And of course, there's really no direct way to get back the sweetheart deals they entailed since it was essentially subsidized (ie, below market rate) loans. But we could at least get government out of the business of being a major financial investor going forward.
- The Fed can end the Primary Dealer Credit Facility and similar liquidity programs.
- The Fed can stop providing liquidity swaps to foreign banks.
- We can scratch that extra $100 billion from the US for the IMF's NAB credit program.
Hence the title of this post. None of this addresses who will pay for what's been spent already, of course (to save the deficit, after all, we'd simply tax the bailout recipients to pay for their bailout) or necessary legal proceedings to investigate potential criminal actions (fraud in particular ran rampant over the past decade). But it at least gives us a signal moving forward. Will it happen? If we sign financial reform into law and keep these various 'emergency' handouts in place, that tells you two important things.
- Transferring money to the rich from the rest of us is a feature, not a bug, of the various policy responses of the past three years, and
- The financial reform legislation is largely irrelevant. We're basically in the same boat we were in last week or last month or last year or two years ago or three years ago.
On the other hand, if these programs come to a swift end after passage of financial reform, throw a party! It means we're making progress at convincing the Administration that siding with the people who vote for Democrats is a lot more fun than siding with the corporate moneybags who are going to harass and oppose the President anyway.
Time will tell.
You can read this all over again at The Seminal at FDL.