This Week in Banking: Root Canals, Rhetoric or Real Reform?

The debate over banks and banking came front and center this week. In his toughest language yet, President Barack Obama vowed to veto financial reform legislation that is not tough enough on Wall Street. "The lobbyists are already trying to kill it," Obama told Congress in his State of the Union address. "Well, we cannot let them win this fight. And if the bill that ends up on my desk does not meet the test of real reform, I will send it back."

The President's rhetoric offers an important measure of progress. Now we can be assured that the political elite are paying attention to the poll numbers showing an unprecedented anger at the big banks and the Wall Street bailouts. Democrats are starting to figure out if they don't take up this populist message and run with it in November, the Republicans will.

But the rest of the President's speech and the other dramatic developments in the banking world this week indicate that Democratic actions are falling far short of their rhetoric, a pattern that voters are sure to notice.

First, the speech. Many had anticipated a big announcement on jobs. With jobless rates in the double digits and a projected 5-10 year haul to get employment back to normal levels, workers were hoping for something big and bold. Instead, Obama proposed $30 billion in TARP funds to get credit flowing to small businesses. $30 billion to put 16 million Americans back to work? $30 billion when the Wall Street bonus pool for a few thousand bankers was $140 billion this month? Democrats will live to regret this missed opportunity.

Also on Wednesday, U.S. Treasury Secretary Tim Geithner was called on the carpet once again by irate members of the House for his mishandling of the AIG bailout. To their credit, several Democrats asked the toughest questions. But Geithner bobbed and weaved and no knock-out punches were landed. This is a problem for the Democrats. The whole incident paints an ugly picture of the federal response to the financial meltdown, best described by Representative Edolphus Towns (D-NY): "The taxpayers were propping up the hollow shell of AIG by stuffing it with money and the rest of Wall Street came by and looted the corpse."

On Thursday, Federal Reserve Chairman Ben Bernanke was reconfirmed by the Senate for another four year term. His nomination had been in trouble and a record number of senators voted no, but Obama stood by his man and pushed him through. The problem with Bernanke is best summarized by economist Simon Johnson: "Bernanke is an airline pilot who pulled off a miraculous landing, but didn't do his preflight checks and doesn't show any sign of being more careful in the future –- thank him if you want, but why would you fly with him again (or the airline that keeps him on)?" While Bernanke may have saved Wall Street, he has shown little interest in using his power as Fed Chairman to aggressively aid Main Street. He is not the man for the job in these tough economic times and that will soon be apparent to the detriment of the Democrats who secured his confirmation.

Ultimately, however, the most important developments of the week were played out behind closed doors in the Senate. Senate Banking Chairman, Chris Dodd, made the decision some time ago to try to devise a bipartisan financial reform package. His package of reforms was then handed over to four bipartisan working groups. With thousands of bank lobbyists swarming the hill, it is no surprise that these groups are busily making the Dodd bill worse.

The derivatives language is being weakened and bankruptcy is emerging as the preferred method of unwinding financial institutions, which could leave taxpayers to foot the bill for this expensive procedure. To truly end the "too big to fail" problem and crack down on the reckless behavior of the biggest banks, we need strong, specific preventative measures such as leverage limits, capital and margin requirements, limits on counterparty exposures, a ban on proprietary trading and limits on bank size through a low cap on total liabilities. Even Obama's signature reform, an independent consumer agency, is in danger of being whittled down to a corner desk in a failed federal agency.

The President understands that the Wall Street bailout was "about as popular as a root canal." But if Democrats continue to peddle this type of rhetoric while neglecting meaningful reform as they have done this week, the Republicans will run away with the anti-bailout message and with the election in November.

Mary Bottari

Mary Bottari is a reporter for the Center for Media and Democracy (CMD). She helped launch CMD's award-winning ALEC Exposed investigation and is a two-time recipient of the Sidney Prize for public interest journalism from the Sidney Hillman Foundation.

Comments

TARP sealed the fate of the Bush administration as being an administration of failed policies, corruption, dishonesty, and knee jerk reactions !! There was no thought put into that bailout for banks, and the country...AGAIN...will pay the price for Bush's failed policies. Obama was elected...OVERWHELMINGLY...to make changes and steer this country in the correct direction and lift people out of the misery of the lost decade. But the republicans have only one answer for the american people...NO !!! We cannot and should not put up with this obstructionist attitude. The republicans act like a bunch of children and cry when they don't get there way. I got news for the republicans...in my opinion you were in charge of both chambers of congress since 1994 and look where we're at !! Republicans have failed to produce anything that has been good for this country. I'm talking about DOMESTIC POLICY...you've failed, and the american people let you know you failed in 2006 and again in 2008 !! For the republicans to fight this president on every single issue is just outrageous, and people wonder why the tea-party movement erupted onto the stage. It's because they feel they've been duped and they are mad as hell !! Also, Reid and Pelosi need to stop playing the role of king of the senate, and queen of the house and start getting republicans onboard and stop shoving their nose in the carpet !! We the people already shoved their noses in the carpet, so MOVE ON !!! In my opinion, President Obama should break these banks up, hold the criminals accountable, and pass legislation to regulate these vultures so they can never bring this economy to the brink again !! If this doesn't get done, then we the people need to stop using these big banks and let them whither on the vine and vote every single incumbent out of office !! I don't agree with everything Howard Zinn believed in (rest his soul) but this I do believe...WHEN THE PEOPLE RISE IN CIVIL DISOBEDIENCE, THE GOVERMENT WILL CONFORM !!!