Opening Night in Chicago: Senator Durbin Denounces Unfairness, Calls for Reform

"There were times when I thought I couldn't last for long
But now I think I'm able to carry on
It's been a long, been a long time coming
But I know a change is gonna come, oh yes it will"

     -Sam Cooke: A Change is Gonna Come

Opening night at the Showdown in Chicago [1]. Senator Durbin from Illinois gave a rousing speech about unfairness, bailouts, credit care usury and bonus audacity. He emphasized the need to be respectful but unyielding in our demands for balanced reform. He spoke of how each marcher is there and represents the pain and hopes of individuals who were abused by foreclosure, subprime treachery and more. The only surprising element was the muted applause in Chicago for the president of the United States. Only on the third time that Durbin referenced the name Obama to arouse the crowd did he get the applause he was looking for.

Sheila Bair, FDIC chairperson, will address the crowd tomorrow. That is great to see. After watching the great episode on PBS Frontline entitled "The Warning" about OTC derivatives, I am beginning to wonder if the essential reform we should be seeking is to have only women regulate finance. Imagine if Janet Yellin had run the Fed, Elizabeth Warren ran the CFPA, Sheila Bair stayed in place at the FDIC and Brookley Born had stayed to run the CFTC. (Though Gary Gensler is doing great work at the CFTC now) They are all highly competent and god knows we would be better off. Every one of these people is first rate competent and does not seem to be missing the capacity of judgment that so many of the men have lacked in the last 20 years.

The question most asked here is "how long can this go on? Bailouts for the ones who created the mess, bankers acting like they earned it, foreclosures and bankruptcies and unemployment rising, and the Congressional Committees pretending to reform the financial regulatory system while they load up on money from the financial lobbyists.

My answer is that no one knows how long. We know that it will change. We will not see a nation that lives on 30 percent credit card rates. We will not see Wall Street wages forever at a 40 percent premium to wages throughout the economy adjusted for skill and experience. We will not pretend that only financial repackagers work hard and are deserving.

The question is when and how, not if, it will change. What hangs in the balance is how much blood will be spilt, disruption needs to occur, homes will be lost, jobs will be lost and municipal functions will be closed down before our political system becomes responsive. We are seeing an ugly chapter in our country, one that Herman Melville in his poem Clarel foresaw as a dark age of democracy. As one of our great theologians once exclaimed,

But today, because we have so cruelly separated freedom from virtue, because we define freedom in a morally inferior way, our country is stalled in what Herman Melville call the "Dark Ages of Democracy," a time when as he predicted, the New Jerusalem would turn into Babylon, and Americans would feel "the arrest of hope's advance." (William Sloane Coffin)

I am grateful that the Showdown in Chicago is happening. What I wish is that professional financiers and economists would join Dean Baker, Bob Kuttner and myself here. This is not left and right, this is right and wrong. Financiers and economists can all see that something is terribly wrong with the financial system. We have embarked on an era of Wall Street Protectionism. Government cronyism conferring gifts upon the Too Big to Fail. While they are not in Chicago the voices of Paul Volcker, George Soros, Mervyn King, and even Alan Greenspan are speaking out. I am grateful for their efforts and courage. Others with financial experience and expertise can see that the market system is being abused. It is time to give up on rational apathy, as Mancur Olson called it in Logic of Collective Action and contribute to the solution.

A series of demands need to be formulated as the pressure rises.

My first cut would look like this:

Bailouts and TBTF

You get bailed out and the public dilutes your equity and top management compensation evaporates. Letters of resignation are given to the authorities. No negotiated terms. Mandatory equity dilution. If you get rescued the public owns some upside. No crony deals between Fed or Treasury officials and management. Anything less is taxpayer abuse.

Foreclosure Modification

Recognize reality. Principal reductions. Burden sharing. 20 percent is less than the costs of foreclosure.

Usury and Credit

As the Industrial Areas Foundation says, 10 percent is enough.

Derivatives Reform

Simple transparent and exchange traded. Regulated capital levels on exchanges.

The efforts that will be required to overcome this Babylon might as well get started here and now. It is my hope that there will be showdowns in Cleveland, Detroit, Miami, Denver, Oakland and more. Things will change. Finance has seen its peak. The question is when and how the change will occur.

This post originally appeared in New Deal 2.0 [2].