Financial Reform: We Can't Afford To Lose

"There's a lot of populism going on in this country right now, and I'm tired of it."

—Sen. Judd Gregg, R-N.H., in an interview on CNBC January 25

Well, thanks to a Supreme Court conservative majority engaging in full-throttle corporatist activism, conservative political leaders using the results of the Massachusetts Senate race to run amok with obstructionism, and Democrats on Capitol Hill with their tails tucked between their legs, populism—pandering and otherwise—could be squashed like a bug under a ton of brick-sized bundles of cash.

That is particularly true with regard to financial reform, the topic that drew Gregg's derisive comment. In the first 11 months of 2009, the finance, insurance and real estate industry spent $336.9 million on lobbying; $37 million of that was spent by commercial banks. That larger industry figure averages out, based on figures from the Sunlight Foundation, to more than $237,000 spent on lobbying each of the 1,420 hours the Senate was in session in 2009.

For the 2010 elections, the finance, insurance and real estate industry has already contributed $85 million to House and Senate candidates. And that was before the Supreme Court blew the lid off what corporations could spend to influence elections.

Those dollars are about to be deployed in a high-stakes campaign of fear and misinformation that could be far more dangerous than the "death panel" hysteria of last summer that poisoned the health care reform debate. Recall that the U.S. Chamber of Commerce announced last summer a plan to spend $100 million on a campaign against the alleged "avalanche of new rules, restrictions, mandates and taxes" that the Obama administration and Congress had in store for the business community. That pot could grow much larger now that the Supreme Court made sure that nothing could prevent the Chamber or any of its dues-paying Wall Street members from flooding the airwaves in any congressional district represented by a member of Congress who dared stand up to them.

Wall Street's titans have not been chastened by the financial collapse they precipitated with their greed and recklessness, enabled by the deregulation-worshiping elected officials whose campaigns they financed. Instead, they are working overtime to reopen the casino; only this time the big Wall Street players are even bigger and thus have an even bigger gun to press against the temples of the American taxpayers when their bets once again go bad.

This madness must cease.

President Obama and Congress has more than the 2010 elections at stake in convincing working-class Americans that they will not be bought by Wall Street, even if, as the Supreme Court has allowed, Wall Street can spend unlimited cash to earn their fealty. The foundations of the economy are at peril if progressives lose the financial reform fight.

We all saw the conservative modus operandi at work in the 2008 Wall Street bailout; whether it was the semi-opaque Targeted Asset Relief Program (TARP) program or the downright secretive trillions of dollars that the Federal Reserve gave to troubled financial institutions: Public dollars given to the private sector with little to no assurance that those dollars would be used for a public benefit—in this case, loans to businesses so that they can hire or keep workers employed, and consumers so that they could do the prudent spending that would keep the economy humming without inflating a new bubble.

But banks, especially the largest institutions that received the most bailout money, used the time they were getting taxpayer aid to pad their balance sheets andnthose of their top executives. The Federal Deposit Insurance Corporation's latest report on banking activity notes that commercial bank loan balances dropped nearly $500 million, to $6.537 trillion, in the year ending September 30. The Wall Street Journal, also looking at FDIC data, found that commercial and industrial loans, a category that includes business loans, fell to $1.28 trillion at the end of September, from $1.36 trillion at the end of June.

Meanwhile, the think tank Demos, in its latest report on the banking industry, found that banks are getting an increasing share of their profits "through a return to the kind of high-risk practices that produced the meltdown," with the only difference being that "more of the capital for today’s high levels of trading and securities packaging comes from the taxpayers in the first place."

When financial institutions are not busy playing Wall Street casino games, they are creating new ways to gouge consumers and businesses who rely on credit cards. Now that Congress has imposed common-sense rules on when credit card companies can raise interest rates—for example, banks can no longer double or triple your interest rate for a payment that's only a day late, or engage in complex double-billing cycles designed to run up interest and other fees—card issuers rushed base interest rate hikes into place for many borrowers and are looking to reinstate annual fees and other charges. There are also the usurious fees banks charge merchants for accepting the card—as high as 2 percent of the cost of the items charged, even though the actual cost of processing a charge transaction is negligible.

Financial services is a growing share of the nation's economy, now comprising 20 percent of our gross domestic product and generating 40 percent of corporate profits. But even before the financial crisis it was evident that there was a widening gulf between the fortunes being made on Wall Street and the millions upon millions of people on Main Street who were either treading water or falling behind. A full 65 percent of the income growth during the Bush years was shared by just 1 percent of the peopulation, widening economic inequality. That gulf is unsustainable, but the elite who have managed to game both the financial system and the political system will ignore that reality as long as they can until populist anger turns into the kind of political action that restores the financial services industry's role as servant of the Main Street economy, not the other way around.

President Obama's plan to partially restore the wall that historically existed between retail banking and high-risk trading, and to stifle further consolidation of the largest banks, is a beginning. The fear is, as was the case in health care and in the economic recovery package, a too-modest proposal will be whittled to something ineffectual by the time the banking industry lobbyists swarm Congress and business interests bombard the airwaves with disingenuous ads. What is needed is bold solutions that actually match the severity of the problem:

• The nation's largest banks should not merely be contained; they need to be actually shrunken.
• Essential (and federally guaranteed) personal and commercial banking functions must not be put at risk by Wall Street speculation, and when financial gambling goes bad, it must be the gamblers who lose, not the rest of us.
• There must be a consumer financial protection agency that can be a counterweight to the banking industry and the regulators that protect their interests.
• The Federal Reserve should be required to disclose and be accountable for the taxpayer funds it uses to sustain the economy and its key players. There is a difference between Fed "independence" and unaccountability; a Fed chairman should be able to answer questions from Congress about what has been done with the people's money.

Finally, financial reform is a moral issue, and we have to connect the change we seek in Wall Street behavior to the basic values we hold as a community of people. The Rev. Jim Walls has taken up that charge in his new book, "A Moral Compass For The New Economy," In that book, he writes:

Goldman Sachs—which borrowed $10 billion from the U.S. government and later repaid it (with some of the windfall profits made from investing our tax dollars)—is on track, as I write, to pay out $23 billion in 2009 bonuses, twice what it paid in 2008. Consumer banks, while not involved in the same tricks as investment banks such as Goldman Sachs, have acted irresponsibly as well. Bank of America and Citigroup, which together accepted $90 billion in bailout funds in 2008, paid out $8.66 billion in bonuses. (Meanwhile, the average bank teller at Bank of America makes only $10.73 an hour—just over $22,000 a year.)

The time has come to say that some of those banks that were too big to fail have now become too immoral to succeed. We must move from not allowing them to fail to not allowing their failed behaviors to continue. It is time to consider taking our money out of the big banks that have continued this bad morality play and put it into community banks and credit unions to protect both our money and our integrity. Our ability to choose different banks, when we see those failures, is an important part of our market system working—perhaps it will also be a way to help change the behavior of the market as well.

But our personal actions are not enough—we need government to help rebalance the system. What has become clear in this bad morality play is that the ethos of Wall Street will not change from the inside. The arrogance and utter shamelessness of the Wall Street financial giants has been revealed—and in such a short time after their economic and moral collapse. It’s clear that Wall Street has learned nothing, wants to learn nothing, and instead just wants to go back to the same old behaviors.

Wallis has captured both the roots of populist outrage as well as the case for saying "no" the unholy trinity of corporate lobbyists, conservative ideologues and cowardly members of Congress who would together take us back to the inglorious days of the Oh-Ohs, in which, as Billie Holiday famously sung, "Them that's got shall get; them that's not shall lose." That is an America we categorically reject, and if people like Sen. Judd Gregg are tired of seeing that populist rejection, they should brace themselves; they haven't seen anything yet.

Views expressed on this page are those of the authors and not necessarily those of Campaign for America's Future or Institute for America's Future