Even though the bank reform bill working its way through Congress is far from perfect, there are some strong provisions well worth fighting for as the bill moves to a House-Senate conference committee.
Two recent articles illustrate the pros and cons of this behemoth bill. New York Times reporter Gretchen Morgenson, does a great job reminding us that the original Glass-Steagall legislation was only 34 pages long and it was key to keeping our financial system stable for 60 years. She points out that the two bills that the Senate and the House have now passed are a whopping 3,000 pages combined:
Yet despite all that verbiage, there are flaws in both bills that would let Wall Street continue devising financial black boxes that have the potential to go nuclear. And even if the best of both bills becomes law, investors, taxpayers and the economy will remain vulnerable to banking crises.
Some Provisions Worth Fighting For
We agree, the bills are far from perfect and will not prevent the next crisis. But while some will walk away in frustration, we think there are a few things left in the legislation that are worth fighting for. Chief among these is the Senate derivatives chapter, which is head and shoulders better than the House version. The main goal of the Senate derivatives chapter is to separate reckless Wall Street gambling from the taxpayer guarantee. Morgenson's article notes that this language is under attack and highlights the fact that taxpayers are now backstopping an unbelievable 59% of the financial sector.
Lawmakers who are charged with consolidating the two bills are talking about eliminating language that would bar derivatives facilities from receiving taxpayer bailouts if they get into trouble. That means a federal rescue of an imperiled derivatives trading facility could occur. (Again, think AIG.)
Surely, we beleaguered taxpayers do not need to backstop any more institutions than we do now. According to Jeffrey M. Lacker, president of the Federal Reserve Bank of Richmond, Va., only 18 percent of the nation’s financial sector was covered by implied federal guarantees in 1999. By the end of 2008, his bank’s research shows, the federal safety net covered 59 percent of the financial sector.
Strong Derivatives Language is Under Attack
Because the Senate derivatives language is so strong, it is under attack from all sides. Michael Lewis, New York Times writer and author of the best selling book on the crisis, “The Big Short,” had a spot-on analysis of the bill in a very funny Sunday op-ed called “Shorting Reform.” The article is written as a memo from a lobbyist to his bosses at the big banks.
Shockingly, the Senate version of the bill more or less would require us to cease to trade derivatives entirely. This unpleasant idea was introduced by Senator Blanche Lincoln of Arkansas, and it leads me to a point that is worth underscoring: We do not have a problem with the American people, we have a problem with American women. Elizabeth Warren, our TARP supervisor, continues to ask questions about what we did with our government money; Mary Schapiro has used her authority at the SEC to sue Goldman Sachs. Of the four Republican senators who crossed over to vote with the Democrats, two were women -- and one of the guys posed naked for Cosmopolitan magazine.
Going forward, we should discourage women from seeking higher office -- or indeed, any position in which they might exert influence over our activities. More immediately, in your private conversations with Larry Summers, Tim Geithner and male Republican senators, you should simply refer to Blanche Lincoln as “unhinged.” They’ll get it.
This must indeed be the backroom banter. How else can the Obama administration defend its opposition to the Lincoln measure?
We Need to Fight To Keep Strong Measures in the Bill
At this point, these strong provisions are in the bill. To preserve them we need to focus like a laser on the conference committee and force all proceedings into the light of day. All amendments to the bill need to be posted online days in advance so the public can read them and analyze them. Each amendment needs to be subject to a roll call vote, and all proceedings must be televised. Citizen journalists should be in the room along with live bloggers.
Do you have other ideas on how to hold the Bankster Party accountable? Send them our way. At BanksterUSA.org, we will be working on transparency and accountability, outing the conferees who are against strong derivatives reform and supporting those who do the right thing. We hope you will stay tuned in, stay in the fight and sign up for email alerts at BanksterUSA.org.