Battling the Banksters 
William Greider 
The Nation 
June 30, 2010 
This article appeared in the July 19, 2010 edition of
The Nation.
http://www.thenation.com/article/36905/battling-banksters

Hold the applause. The president would like us to
celebrate his "Wall Street reform," but the legislation
is misnamed. Barack Obama did not set out as president
to reform Wall Street in fundamental ways but to restore
it. Judging by the largest banks' booming stock prices
and executive bonuses, he appears to have succeeded. The
leading bankers expressed relief when they saw the
reform package Congress cobbled together on June 25.
Wall Street, loathed by citizens everywhere, dodged the
bullet in Washington.

Congress followed Obama's path and rejected the sterner
measures that promised to actually change things. As
with healthcare reform, the White House, joined by the
Treasury and the Federal Reserve, spent much of its
energy opposing more aggressive ideas or bargaining
small-bore compromises. The president kept a low
profile, saving himself for the victory celebration.

Despite the defeat of real reform, progressives should
not despair-the future looks much brighter than the
headlines suggest. Yes, Congress choked on the hard
questions. But assuming the Dems pull together last-
minute wavering votes, it will be a stronger bill than
either the White House or the bankers had intended,
thanks to public anger, popular mobilization and nimble
pressure from reformers.

This is not the end of reform; it's the beginning of a
promising struggle to cut the financial sector down to
tolerable dimensions and reduced power. The forces of
reform demonstrated that they have the strength and
especially the ideas to win this fight-just not this
year.

Mainly, the legislation gives government regulators
explicit authority to take tougher measures to curb Wall
Street's dangerous behavior, but only if the Fed and
Treasury decide it's a good idea. Don't hold your
breath. These same agencies failed massively to confront
the rampant recklessness that led to collapse (many of
them claimed not to have seen the trouble coming).

Once again, the risk-taking is assigned to unwitting
citizens and the economy. Washington saved big-dog
bankers from failure, but it has not saved the rest of
us from the bankers. Some reformers want to make the
best of mixed results. The Consumer Federation of
America says the banks "won a few battles; they lost the
war." I would say it is the other way around: reform won
some battles but lost the war.

Some valuable improvements, like the Consumer Financial
Protection Agency, can lead to tougher rules, but even
such worthy accomplishments were diluted in the fine
print. The supposedly "independent" consumer agency is
to be a "bureau" within the Federal Reserve, where
hostile central bankers can find ways to smother the
infant in its crib.

The improved controls on dangerous derivatives were
likewise weakened in last-minute deal-making that gave
bankers much of what they wanted-a free hand to keep the
casino open for the gamblers. Bottom line: key elements
of financial abuse that contributed to the breakdown
have not been eliminated. And taxpayers are still on the
hook for bailing out "too big to fail" banks.

Yet despite disappointing results, the losing issues
revealed reasons for optimism. Think of this as Round
One. We witnessed a surprisingly strong preview of Round
Two in the aggressive reforms pushed by some Democratic
senators. These proposals could someday-maybe sooner
than we imagine-constitute the platform for authentic
reordering of the banking system.

In the trenches the legislative battle was Democrats
against Democrats (Republican senators were united in
opposing everything). These roll calls made visible the
deeply conflicted purposes of the party-the awkward
straddle Democrats have maintained for three decades. Is
it the party of working people or the party of big
money? Democrats have for some time wanted to be both,
but this year's action exposed the contradiction more
starkly and put the two sides into repeated collision.

Senator Byron Dorgan's amendment would have outlawed the
exotic "naked" credit default swaps, which let bankers
and others bet on assets they do not own (like buying
fire insurance on your neighbor's house, then lighting
the match). Other Democrats decided to table Dorgan's
measure rather than choose between Wall Street and
public anger at Wall Street. Dorgan's issue lost big,
thirty-eight to fifty-seven, but it won among Dems,
thirty-six to eighteen.

Senator Sheldon Whitehouse's amendment on usury would
have repealed the federal pre-emption that prevents
states from enacting their own limits on consumer
interest rates. Whitehouse got thirty-three Democrats
for, twenty-one against. Roughly speaking, these roll
calls joined old liberals and younger, newer senators
against the party's center-right establishment, which is
typically closer to financial patrons.

Senator Sherrod Brown's amendment followed the same
pattern but on a far more fundamental issue-forcing the
largest, most dominant banks to get smaller, breaking up
concentrated financial power. Brown won among Democrats-
thirty yes, twenty-seven no-though not enough to
overcome Republican naysayers. Still, the Ohio senator
came away remarkably optimistic about eventually
winning.

"We got a majority of Democrats on the floor but almost
nobody on the banking committee," Brown said. "It
reminded me that this institution was built to protect
the status quo-to protect the powerful against the
people. In this chamber, we all sing with an upper-class
accent, so to speak."

Yet Brown sees the path by which breaking up the banks
will be forced back before Congress. "In the long term,
we are going to win this issue," he said. "I can't say
what the long term is, but the business community is
eventually going to be for it." That's because the
legislation implicitly awards privileged status to the
very largest financial institutions, which means the
disadvantages of "too big to fail" will fall upon
smaller banks and other corporations. That, Brown
thinks, will build the support among them for decisive
reform. "The biggest banks get a built-in advantage
because capital markets understand, or believe, that
these big banks will never be allowed to fail," the
senator explained. "Therefore, they get a lower interest
rate when raising capital-seventy basis points or so-and
therefore businesses naturally want to deal with them.
So these big banks will get bigger and bigger."

The logic did not persuade this time around. "The
argument against my amendment, implicitly, was, It's a
radical thing to break up the banks-we can't go that
far," Brown says. "The explicit argument was, We can't
do that because it would disarm the country in global
finance. That doesn't make any sense. You don't need $50
billion banks to get economies of scale."

Brown's spirit of confident optimism is the model for
sustaining reform politics. As he sees it, liberal
advocates can win if they do the hard work of explaining
and recruiting not just among kindred spirits but among
normally conservative business interests and ordinary
apolitical citizens who don't call themselves liberal or
progressive. Both groups are deeply angered and feeling
threatened by the swelling concentration of Wall Street
power. "It will not take another financial crisis to get
back to breaking up the banks," Brown predicted.

A similar strategy is being taken up by labor and
citizen reform groups, especially those outside the
Beltway, like National People's Action. They intend to
aim direct action at banks and focus on people's
concrete grievances. That starts with the foreclosure
crisis, which Washington has shamefully neglected.

Instead of congratulating Democrats for enacting timid
measures, we should show them what we have in mind for
Round Two.

_____________________________________________

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