Simon Johnson

For a Sane Economy in 2012, How About a Little Shame?

Richard Eskow — Mon, 02 Jan 2012 16:17:11 -0500

The other day I was asked what one single thing could do the most to save our economy. What one idea or tool might help us create a more just society? My answer was "shame."

Shame isn't always a wasted or negative emotion. On the contrary, it can perform an important and socially useful function. Shame enforces our moral values even when legal and political institutions are too broken or corrupt to do so. Our society must learn to develop a "moral economics," and morality is often enforced through shame.

We live in a society where it's no longer considered shameful to oppose spending $6 billion to save nearly 8 million lives, even though that's less than $800 apiece. This kind of cynicism is so accepted, in fact, that even the more liberal political party doesn't dare suggest it. We live in a society where it's not shameful to let crooked bankers go unpunished while asking everyone else to pay the cost of their illegal enrichment. Nowadays even the lawbreakers aren't ashamed of themselves!

Incredible.

Perhaps no single change to our culture could do more to improve our lives than the rediscovery of the shame we used to attach to vile, greedy, selfish, and corrupt behavior. Consider how far we've fallen:

Not long ago a person would have been ashamed to appear in public if they had shattered the global economy by cheating millions of innocent people, accepted the outstretched hands of the same people they'd cheated by accepting an unconditional bailout, and then cheated them again.

Not long ago a politician who accepted the corrupting dollars of known criminal bankers immediately paid a steep price. (See the Keating Five, for example.)

Not long ago political figures and pundits were ashamed to openly advocate the deaths of millions of people just to provide tax advantages for the wealthy or ensure more favorable market conditions for predatory corporations.

In 2012, it's time for shame to make a comeback.

Where would it be useful? Here are just four examples out of thousands to choose from:

1. We should be ashamed that we don't give more to fight global AIDS.

A new medical study showed that developed nations could save 7.9 million lives in the next eight years by increasing AIDS funding for developing countries by $6 billion. That comes out to about $760 for each human being whose life would be spared. As an added benefit, an estimated 2.5 million people would never be infected with AIDS at all.

George W. Bush began the anti-AIDS program known as PEPFAR in 2003, and funding grew steadily every year until President Obama took office. It then flatlined in the first year and dropped in the second year, before increasing slightly in the third Obama budget:

Image source: Kaiser Family Foundation

An ethical society -- not just ours, but of all developed nations -- would find it unacceptable to deny these programs the funding they need. Six billion dollars sounds like a lot, but the top 25 U.S. hedge fund managers made $22 billion last year. Taxing them at the same rate they paid under Ronald Reagan would cover the entire amount and would save all those lives.

But the Republican Party opposes anything like that, and President Obama hasn't asked for more.

2. Leaders of serial corporate criminal banks should be ashamed of themselves.

Jamie Dimon, CEO of JPMorgan Chase, makes it a habit to publicly express his resentment at the very mild and genteel criticisms that lawbreaking bankers must endure in our society. He does so with a combination of disingenousness and genuine self-deception that is a marvel to watch. In his latest outburst, Dimon complained about Occupy Wall Street by saying, "Acting like everyone who's been successful is bad and because you're rich, you're bad, I don't understand it. Sometimes there's a bad apple, yet we denigrate the whole."

Maybe those "bad apples" would provoke a different reaction if executives like Dimon weren't personally supervising such a large barrelful of 'em. Shortly after Dimon expressed his outrage, his bank and a number of its employees went on trial in Italy for allegedly deceiving a municipality into deliberately and deceptively purchasing bad investments. And while this Business Week article carefully points out that these alleged crimes took place before Dimon became CEO in 2006, he was already president and COO at the time of the worst allegations

As president and COO, Dimon also presided over an institution that paid hundreds of millions of dollars after it bribed municipal officials in Alabama and misled investors in a fund called Magnetar. Under Jamie Dimon's leadership, JPMorgan Chase (or rather, its investors and insurers) paid a fine for breaking the law while promising not to do it again -- and then promptly did, at least three more times.

Similarly, GE Capital keeps breaking the law under CEO Jeffrey Immelt. In its latest settlement, a division of GE paid (or rather, its investors and insurers) paid $25 million after being charged with what the SEC described as "fraud for participating in a wide-ranging scheme involving the reinvestment of proceeds from the sale of municipal securities."

This is merely the latest in a GE crime spree that includes misleading investors, bribing Iraqi officials in the "oil for food" scandal, and what the SEC described as "fraud, deceit, or deliberate or reckless disregard of regulatory requirements [that] resulted in substantial loss, or significant risk of substantial loss, to other persons."

And yet Immelt, like Dimon, walks in polite society. He even leads President Obama's recently renamed "Jobs Commission."

Nobody is saying "because you're rich, you're bad." Nobody's calling Warren Buffett bad, for example. They're not even saying that about megamillionaire Jimmy Buffett -- and after the 6,000th hearing of "Margaritaville," that's pretty damned generous if you ask me.

But here's why words like "bad" get attached to executives like Dimon and Immelt: because they or their subordinates keep breaking the law, and either they don't care about it or they aren't competent enough as managers to stop it. Their arrogance and pronounced lack of remorse suggests it's the former rather than the latter. But either way, they're in no position to lecture others, especially since the lawbreaking keeps fattening their personal bank accounts.

They should be ashamed.

3. Officials and bankers should be ashamed that "too-big-to-fail" banks still exist.

As Simon Johnson notes, "Big banks represent the ultimate in concentrated economic power in today's economies. They are able to resist all meaningful reform that could really change their compensation schemes. Their executives want to get all the upside while facing none of the true downside. But capitalism without the prospect of failure is not any kind of market economy. We are running a large-scale, nontransparent, and dangerous government subsidy scheme for the benefit primarily of a very few extremely wealthy people."

The top U.S. banks now control more of the economy than they did before the Great Recession. The Fed is secretly bailing out Europe's too-big-to-fail banks as this is being written. And nobody's doing anything to change that.

They should be ashamed.

4. It's shameful to preach welfare for bankers and austerity for everyone else.

Meanwhile, in the great capitals of Europe and North America, the talk is of austerity economics. That means drastic cutbacks in government services that the public has paid for, like Social Security, that form the backbone of a prosperous, fair, and humane society. Leaders are calling these cuts "unavoidable" even as economists warn that they're already creating a new European recession.

It is, as Paul Krugman observes, something that will appear remarkable to future historians (if any history departments survive the austerity cuts to preserve the profession). They're not prescribing the "hair of the dog"; they're forcing the entire dead animal down the public's throat.

Why would Europe's leaders propose a set of policies that is already demonstrably making the economy worse? In part, probably because it's the easiest way to prop up the current financial system. Comprehensive economic reform would threaten the institutions they feel sworn to protect. Conventional thinking is also a big part of the problem -- and conventional thinking makes no room for a "moral economics."

For that they should be deeply, deeply ashamed. The Hall of Shame includes Angela Merkel of Germany, Nicolas Sarkozy of France, David Cameron of Great Britain, and -- at times -- Barack Obama of the United States. And if they're not capable of shame, the society around them must express that shame for them. It's already moved Obama's rhetoric, and we need more of the same in the coming year.

For those who preach the radical dismantling of the government that made our society great -- especially the Republicans of the United States -- no amount of shame can be enough. And for someone like Mitt Romney, who knows how to read financial reports and clearly knows better, it's worth noting that the eighth circle of hell is reserved for those who knew better and yet did wicked things anyway.

Let's make 2012 the Year That Shame Returned to the Economic Debate.

Blindsight: Economic Injustice, Country Music, and Third World America

Richard Eskow — Mon, 13 Sep 2010 16:34:53 -0400

Last November, when the Tea Party Express was just building up a head of steam, it seemed worthwhile to stop for a minute and listen to a country song. Why? For one thing it's a really good song, and it had a great hook. "Here in the real world," it says, away from those powerful guys in Washington and New York, "they're shuttin' Detroit down."

That theme was so inclusive and compelling that conservative singer John Rich (John McCain's campaign troubadour) was able to get noted lefty Kris Kristofferson to act in the video, along with Mickey Rourke. That made the song important and interesting. How was John Rich's message able to win over those guys? Because it was simple and true: The people who got us into this mess are doing just fine, and the people who worked hard and played by the rules aren't. What concerned me back then was that this message, while compelling and accurate, could wind up benefiting some of most bank-friendly politicians on Earth. The Republicans who deregulated banking (along with centrist Democrats) could wind up with more power. They'd then be in a better position to carry out their agenda of blocking the modest banking reforms and economic fixes being recommended by the White House and Congress.

Isn't that pretty much what's happening?

Reading Arianna Huffington's new book Third World America made me think of that song again. There's a medical phenomenon called "blindsight," where people who seem to be partially or completely blind are able to respond to visual information under test conditions. The theory is that they're not blind at all, but are unable to consciously process the information they're receiving from their eyes. Isn't that what's happening in the country right now? Most people aren't economists or policy wonks, after all, so they probably haven't "seen" this chart:

(source)

But on some level they know it. And they may not have seen this chart, either (from CBS Moneywatch via Mike Konczal), but you can bet they "know" it too:

People need ways to integrate and process all the information they're receiving. They're struggling with the cognitive dissonance they experience when they're told the economy's doing better, because they know that in their world it's not. Human beings have always used stories and songs to integrate the information they receive, and we need better stories and better hooks than we've been getting lately.

Know what's a good hook for these troubled times? "Third World America." Know what's not? "Recovery Summer." So score one for Arianna before the cover's even cracked. The "recovery summer" theme was bound to ring false for the millions of Americans who still live in a devastated economy. That was destined to reduce the credibility of the very institutions that prevented even greater damage - institutions that could do more to help them.

We've seen the Administration move toward a more coherent narrative in the last week, but will it be enough? "I ran because I felt that we had to have a different economic philosophy in order to grow that middle class and grow our economy over the long term," the President in Friday's press conference. That sounds like a story worth telling.

Third World America is direct and clear in its message: Decades of aggressive corporate lobbying, driven by bankers and other large corporations, have led to a series of policy decisions that are eroding the American standard of living. The details are all there: The financial industry's gone from 2.5% of our GDP in 1947 to 8.3% right before the meltdown. Financial profits went from a maximum of 16% between 1973 and 1985 to 41% right before the crisis hit. And rather than being chastened by their failure, or disciplined by taxpayers in return for being bailed out, bankers have embraced their old ways with enthusiasm. Meanwhile the American households that rescued them lost $13 trillion in wealth between mid-2007 and March 2009.

There has been, in economist Simon Johnson's words, a "quiet coup" led by a classic "oligarchy." Bankers now exert enormous control over both the economy and the political process. People see that, and they're angry. Anyone who wants to discuss the current state of affairs better be prepared to speak plainly - "third world America," "quiet coup," "oligarchy" - or they'll be ignored.

Some of us are actually old enough to remember when the American dream was at its peak. Even if you were just a kid, you knew certain things: If you worked hard, you could retire in financial security. You lived in a country that led the world in science research, education, and social mobility. We designed things, built things. We were creating the future. Many of us later traveled into Third World countries for work or pleasure. We were saddened by the crumbling roads, unsafe bridges, and unregulated companies poisoning the air and water. The income inequities seemed so unjust, and the people's inability to heal their country through a free political process was tragic.

Little did we suspect we might be looking into our own future.

But Arianna's not just crying in her beer. The final section of the book details a series of fixes, which include: Campaign financing. Citizen activism, with less reliance on politicians as saviors and more on ourselves as the agents of change. Spending on infrastructure and education. Bank reform with teeth. Homeowner relief. Service to others. Moving your money away from predatory financial institutions.

I'd add another to that fine list: Stop judging the tea party radicals around you. Sure, some may be extremists and racists, but lots of them are just frightened and angry. They're trying to reconcile what they "see" with what they're being told. Right now they believe a false story, but it hangs together and makes them feel sane in a seemingly insane world. Demogogues have always used these kinds of stories to exploit human fear. You can't blame people for believing a false story if they haven't heard the real one.

So don't blame the individuals, blame the story. Tell them a better one. The truth is a helluva story. But even the truth works better if it has a good hook.

Liveblogging Simon Johnson and Robert Johnson at America's Future Now!

Zach Carter — Tue, 08 Jun 2010 07:46:21 -0400

8:40

Terrific question from Mary Bottari. Everyone says they believe in higher capital requirements-- even bankers-- but so far, all of the negotiations regarding new capital requirements are leading to very small adjustments, rather than significant changes. The higher a bank's capital requirements, the less it can gamble with borrowed money, and the greater it's cushion against losses. Lehman Brothers had a Tier 1 capital ratio of 11 percent right before it filed for bankruptcy, and that wasn't enough-- right now the international negotiations are leading towards a consensus of . . . 11 percent.

Radical right-winger Eugene Fama wants 40 percent to 50 percent capital requirements for banks. Simon Johnson says 20 percent to 25 percent capital requirements are acceptable, provided the biggest banks are broken up.

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8:30

Robert Johnson: "The two things that blow out the debt-to-GDP are financial crises and wars." So being a deficit hawk means being a financial reform hawk and an anti-war advocate.

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8:20

Good question from Bob Kuttner. Teddy Roosevelt was kind of a radical fluke-- he only came to power because McKinley was assassinated. Obama has not supported serious financial reform-- how can progressives talk about moving progressive policy when the administration simply will not lead?

Simon sez: So what? Progressives worked for decades to change the consensus and create new ideas about how big business should operate. When somebody like Teddy Roosevelt did come to power, those ideas were not mainstream, but they were out there, and Roosevelt was able to deploy them in public policy.

We can't make the president a progressive, but we can create the groundwork for a progressive president to take advantage of. There is very bad news for Democrats here-- Roosevelt was a progressive, but he was also a Republican, and his reformist domestic agenda made him wildly popular. If Democrats don't seize the mantle of reform, somebody else will.

********************

8:15

My colleague Richard Eskow asked a great question. Goldman booked a profit on its trading operations every single day of the previous quarter. What's going on?

Simon and Rob responded with the clear answer-- proprietary trading, particularly in the derivatives market, operates like a casino. And in casinos, it is not unusual at all for the house to win every single day.

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8:10

Great, simple question from Simon. By a show of hands, who here thinks that the government would allow Goldman Sachs to fail once the administration gets it's resolution authority? Not one person in the entire room raised a hand.

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8:07

Rob Johnson: "The administration has said several times that this bill will end too big to fail. Let's talk about that."

Simon Johnson: "Well, it won't."

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8:00

Banking was boring from the 1930's through the 1970's-- banks made simple, straightforward loans and were heavily regulated, and as a result, didn't make a ton of money. By deregulating banks, the compensation system got completely out of whack-- banks started paying huge bonuses based on short-term profits, while ignoring longer-term risks to the broader economy.

Serious changes to the structure of the financial system would have the effect of cutting back on Wall Street bonuses. But the scope of Wall Street pay has several residual effects on Wall Street's grip on Washington. Regulators, for instance, are less likely to leave their posts in government for a job in banking when finance doesn't pay. But the important change is the mystique and glamour of banking. In the 1950s, a banker was a pretty boring guy who played a lot of golf. Today, bankers are super-stylish elites. Thanks in part to America's obsession with wealth, powerful people in Washington and much of the public believe these bankers must be doing something right to be living so lavishly.

And in a sense, the bankers are doing something very clever-- they've found a way to live off the public purse and prevented their actions from being subject to serious market or regulatory accountability. Markets don't work when nobody can be held accountable for their decisions, particularly if those decisions have the potential to wreck the broader economy, which is exactly what happened in 2008.

***********************

7:54

Another important point from Simon Johnson (surprise!). The view that today's megabanks are dangerously large and need to be broken up is not a left-wing view. Many progressives and lefties agree with it, but the issue is a matter of fundamental market functionality, and plenty of moderates and right-wingers agree that big banks need to be broken up.

Even Eugene Fama, a conservative, market fundamentalist economist who invented the efficient markets hypothesis, actually agrees that today's big banks are receiving dysfunctional subsidies from taxpayers and corrupting the very essence of financial markets.

*************************

7:50

Simon Johnson just drew one of his favorite parallels. When Teddy Roosevelt was trying to break-up the big, corrupt trusts in 1902, the mainstream intelligentsia was totally opposed to it on economic grounds. But by 1912, public opinion was decided in favor of breaking up Standard Oil. So it is today with big banks-- people are beginning to realize that the policies handed down to Washington from Wall Street over the past few decades have been terribly destructive, but it takes time to significantly shift public opinion definitively.

Law and Order: AIG

Richard Eskow — Tue, 01 Jun 2010 19:48:12 -0400

President Obama's Department of Justice announced last week that there would be no indictments in the collapse of AIG, an event which led to a worldwide economic collapse and cost the American taxpayer trillions. As someone who once worked for AIG I was shocked, but apparently that's how this mystery ends: Hundreds of millions of victims, smoking guns in every room, and not a perp to be found anywhere.

Yves Smith is disappointed that PriceWaterhouseCoopers, the auditors who signed off on AIG's financial claims despite mounds of disturbing evidence, escaped serious legal scrutiny. She observes that our "Potemkin" financial reform (her word) won't remove the barriers that prosecutors face in pursuing secondary parties like auditors (although I believe the Supreme Court ruling she cited only addressed civil suits.) Not only is the auditor protected, but that allows the fraudster himself to use the defense that he kept his auditor informed - kind of like Bush and Cheney using John Yoo's legal opinion to inoculate themselves from criminal prosecution.

Here's another possible reason there won't be a prosecution: Our economy was shattered by a syndicate, a ring, a cabal at the top of the financial pyramid. To move against any one of them - AIG's Joe Cassano, the auditors, Goldman Sachs, or even the credit agencies - would trigger a chain reaction of rats turning on one another, summoning each other to testify, and spilling each other's dirty secrets in an attempt to save themselves.

Of course, that's exactly what most prosecutors want. But doing that could topple that pyramid at the top of our economy, and it looks like our leaders don't recognize that this would be a good thing. We must protect the booming stock market, whatever it takes. If it means leaving the con artists in power, leave 'em in power. If it mean breaking America's longstanding social contract in the name of "deficit reduction," that's okay too. (There's an irony in the fact that Great Britain's new government is under pressure to make cuts to keep its AAA rating. and that we may be next. The ratings agencies are part of the problem, and now it looks like they're controlling governments instead of the other way around.)

Was there reasonable suspicion regarding Cassano and AIG Financial Products? Let's review the record: AIG paid $80 million to settle criminal charges against Cassano's unit in 2004 when it helped PNC Financial conceal assets. AIG didn't just pay a settlement. It also signed a deferred prosecution agreement with the Justice Department leaving it open to criminal prosecution if it misbehaved again. (There's a good timeline here.)

After that Cassano kept reassuring the public - and investors - that his products were safe throughout 2007. (It's illegal to mislead investors.) Cassano fought the independent auditor who was brought in to watch his books, preventing him from looking at certain critical books of business and eventually driving him to resign. Cassano insisted that PwC stay out of his way when he prepared for a presentation to investors in December 2007 (hello, Securities and Exchange Commission!)

Then, of course, all hell broke loose. With that history, why didn't Cassano face trial? As the Wall Street Journal reports, "prosecutors obtained information about Mr. Cassano's disclosures to AIG senior executives and AIG's outside auditor, PricewaterhouseCoopers LLP. That changed the course of the investigation, these people said." So he stonewalled the outside auditor, but he shared info with the cozy inside one? Apparently a compliant auditor is even better than a Father Confessor - you're absolved when you tell him your sins, and he'll never give you "go and sin no more" nonsense.

PriceWaterhouseCoopers weren't just AIG's auditors. They were Goldman Sachs', too. That's right: they had another huge contract with the counterparty whose thirteen billion dollar claim was paid in full on the instructions of Tim Geithner's New York Federal Reserve. So PwC let two massive financial institutions engage in a highly speculative venture - one possibly misleading the other - and raised no warning flags.

Publicly traded companies are required to disclose corporate threats in their 10-K statements, which are approved by their auditors. Here's what AIG said in its 2005 statement (buried several pages into the "Risk Factors" section): "AIG's liquidity could be impaired by an inability to access capital markets or by unforeseen significant outflows of cash." (Gee, ya think?) That's about it for risks. PwC either ignored or missed the warning signs as AIG accumulated losses great enough to break the world's economy.

How have they suffered for this dismal track record? Their revenues rose 8% to $28.2 billion in 2008, and operating profits grew in the fiscal year ending June 2009. And why not? A lot of businesses enjoy the, uh, shall we say flexibility that comes with an auditor like that. Of course, there's no proof their conduct was criminal. They may have just overlooked the worst meltdown in modern financial history.

How about the ratings agencies? The warning signs were there: A plea deal on a charge of criminal fraud, ongoing negotiations with the New York Attorney General, leading economists expressing concern about the stability of the housing market. Yet remarkably (or not), leading ratings agencies S&P and Moody's were rating AIG well right up until September of 2008, when it became clear that it had already lost $18.5 billion and the worst was yet to be revealed. Until that point, S&P had given AIG's counterparty deals the top rating of A-1+, which means "obligor's capacity to meet its financial commitment on the obligation is (very) strong."

In 2007, well after the Spitzer investigation was underway, Best's affirmed that in its judgment AIG's creditworthiness was "superior," saying that "AIG's renewed focus on accounting integrity and future successful remediation of accounting concerns provides a level of stability."

Accounting integrity? Write your own joke, as Ed McMahon used to say. When it comes to PwC and the ratings agencies, Upton Sinclair got it right: "It is difficult to get a man to understand something when his job depends on not understanding it."

We've already reviewed the emails and internal documents showing that ratings agencies were always selling their services to these institutions, a hopeless conflict of interest. The Franken Amendment would improve that situation significantly, but there's no guarantee it will survive the House/Senate negotiations - which should be fully transparent to the public (sign the petition to televise them here, folks.)

My own background as an AIG exec adds an extra dimension to my sense of outrage. The company was destroyed by the ratings agencies, the auditors, and Goldman Sachs (AIG's replacement CEO, Edward Liddy, served on the Goldman board). I heard horror stories about hard-working people who had nothing to do with the scandal receiving death threats or having to pull their kids out of school. Joe Cassano kept his ill-earned salary and bonuses, and for a while after he left was paid $1 million every month at Liddy's behest. PwC had a boom year, and the ratings agencies still (remarkably) have some credibility.

But a once-thriving company is dead. We've paid hundreds of billions of dollars directly, and trillions of dollars indirectly. 15 million people are out of work. The gamblers in the Wall Street casino are still placing bets, secure in the knowledge we'll cover their debts. As they said about Nicky in Casino, they "had a good system: When they won, they collected. When they lost, they told the bookies to go f**k themselves."

And now we're told that nobody's guilty. That's getting it backward. It's like Murder On the Orient Express: They all did it. But apparently we're the only ones who are going to pay for it.
_____________________________

(We'll be discussing financial reform and other critical issues with Simon Johnson, Nancy Pelosi, Alan Grayson, Robert Kuttner, Arianna Huffington, Bob Herbert, and a host of other luminaries at the Campaign For America's Future Annual Conference on June 7-9.(1) Walk-ins welcome! More info here. Come on in!)

(1) As they (never) taught me on Wall Street, "always be closing."

The President Has Spoken. Now Let's Help Him Act.

Richard Eskow — Thu, 22 Apr 2010 14:51:04 -0400

If you've ever wondered what the phrase "the sound of silence" means, you should've been listening when the President invited "the titans of industry" to join him in promoting financial reform this morning.

The President's speech walked a fine line between vision and reality. At times it seemed almost an internal dialog between the technocrat who sees the problems and knows how to fix them, and the political pragmatist who wants to reap electoral rewards from whatever bill finally gets passed.

"Between the dream and the reality," wrote T. S. Eliot, "falls the shadow." The President's speech demonstrated that he sees what needs to be done. But reform has to make its way through the legislative shadows on Capitol Hill. That means it's up to the rest of us to create the political climate that makes that makes genuine reform possible - or, better yet, inevitable.

The signs are good. Sen. Chuck Grassley's vote yesterday for Blanche Lincoln's derivatives amendment reflected a new political reality: Republicans can't afford to be seen as favoring Wall Street, and when they're faced with an up-or-down vote they'll be under tremendous pressure to cave.

The President's speech was strong on principles. He led off the policy section of his speech with a strong endorsement of the Volcker rule, which in his words "places some limits on the size of banks and the kinds of risks that banking institutions can take." That's exactly what's needed (although the Dodd bill as currently written fails to deliver it.) The President also spoke strongly in favor of transparency, and was at his strongest when talking about consumer protection. He said:

"While a few companies made out like bandits by exploiting their customers, our entire economy suffered. Millions of people have lost homes, and tens of millions more have lost value in our homes ... unless your business model depends on bilking people, there is little to fear from these new rules."

That last comment was met with stony silence from the financiers in the audience, and no wonder: Their business model frequently does depend on "bilking people." As my colleague Zach Carter has pointed out, Jamie Dimon's JPMorgan Chase expects to lose one-half to three quarters of a billion dollars as a result of new consumer credit card protections, and to book a loss on their card operations for the year. So, at least in one of his corporate divisions, the man once called "Obama's favorite banker" did build a business model based on bilking customers.

Some viewers of the speech were no doubt frustrated by some of the parsing. Shahien Nasiripour cleverly caught the contrast between Obama's "join us" stance toward bankers and FDR's defiant "I welcome their hatred" speech. But that difference reflects the President's temperament and a changed political climate, and doesn't detract from the core of his message.

Obama's comment that both the Senate and House bills "represent a significant improvement" over the status quo will frustrate a lot of people, too. That's the politician talking: If the weak Dodd bill is the best he can get, he'll still need to declare a great victory in anticipation of November's elections. But there's no reason to expect that this bill really is the best he can get.

Strong reform measures need to be brought to an open vote on the Senate floor, where Wall Street-friendly Senators of both parties are unable to hide behind procedural smoke screens. It's tough to make a public stance in favor of the big banks in the "transparency" of an open vote, and that provides an unprecedented opportunity for real change. That's why Simon Johnson's suggestion - that you call your Senator, Harry Reid, and the White House to demand an up-or-down vote on the Brown/Kaufman SAFE Banking Act - makes so much sense. (Why not take a quick break and do it right now?)

There are other amendments that deserve support, too. Sen. Jack Reed's consumer amendment, Bernie Sanders' proposed audit of the Federal Reserve, and the truly bipartisan McCain/Cantwell amendment to reinstate the Glass-Steagall Act are all important.

Sure, we could critique parts of the President's speech. His statement that "there is no dividing line between Main Street and Wall Street ... we rise or fall together as one nation" is demonstrably false. One look at unemployment figures and the Dow will tell you that. But he can be forgiven the rhetorical excesses, especially if he succeeds in providing what he rightly describes as "common sense" fixes to a real problem. These reforms should appeal to people across the political spectrum, and deserve support from anyone who believes in non-monopolistic free market capitalism.

The President will face an ongoing temptation to compromise, to declare victory with the Dodd bill as written when he's faced with organized resistance. The same political pressure that encourages Senators to strengthen reform will also help the President stay resolute on this issue.

The political climate is right for meaningful change. The President needs public help and support to get tough reforms through the Senate. He's said his piece. Now he - and we - need to follow it up with concrete action.

Shock Doctrine in Reverse: A Week of Setbacks, A Window of Opportunity

Richard Eskow — Fri, 22 Jan 2010 13:56:14 -0500

What a week. Call it the Shock Doctrine in reverse: The Massachusetts election and yesterday's Supreme Court ruling may force the Democrats to move to the left to ensure their political survival. They're now faced with a choice they clearly didn't want: forcefully reject the corporate agenda, or risk losing to opponents who can attract an unlimited flow of corporate dollars.

Many of us who supported the Democrats last year knew they'd disappoint us at times, but Barack Obama's mid-course corrections during the campaign showed that he had an innate teachability in the face of events that challenged his tactics or his beliefs. We need that teachability now, and it must extend to the rest of his party. Without it we may find ourselves in a nation where democracy is a commodity and real reform is an unreachable goal.

First came Massachusetts. Voters in a liberal state - one with a health reform initiative already in place - rejected the Democratic candidate in favor of a handsome cipher. Good-looking strangers are a sure sign that a marriage is in trouble, so when Northeastern voters went for a retread of Fred Thompson's phony "old pickup truck" routine from Tennessee ... well, it showed they're pretty unhappy with what they're getting at "home."

And, as analyses and next-day polling made clear, these pro-health-reform voters rejected the Senate bill's more right-wing remix of their own law. Most Obama voters who switched to Brown felt the Obama/Senate proposal "didn't go far enough," and polls now confirm that hostility toward the anti-middle-class "Cadillac tax" played a part in their disaffection, too. Democrats love to mock the tea-partiers, but it turns out they understood the nation's middle class rage better than the White House did.

The Democrats are pivoting somewhat in response to the Massachusetts vote. As Simon Johnson explains, the President's move to institute what he calls the "Volcker rule" limiting banks is clearly a response to Massachusetts. Pictures of the announcement showed Volcker standing behind Obama while Geithner, perhaps symbolically, stood well off to the side - the right side - of the President.

There was an immediate reaction in the Senate. The momentum shifted away from confirming Ben Bernanke, whose re-appointment marked the latest in a series of Presidential moves to endorse the Wall Street-friendly people who got us into this mess.

And that was just the first part of the week. The bigger shock was yet to come, with the Supreme Court's ruling that corporate campaign contributions could not be limited because corporations are "persons." Don't try to understand the tortured logic, since this decision was clearly as cravenly political as Bush v. Gore. "Persons"? Here's my test for "personhood": Every person I know has had their heart broken at least once, then spent the night listening to sentimental songs. The only tune that moves corporations is that Motown classic, "Money."

The Supreme Court ruling leaves Obama and the Democrats with another choice: Push aggressively for genuine campaign reform, or watch their careers get swept away by corporate-friendly (some would say more corporate-friendly) candidates awash in name-brand funding.

(Corporate sponsorship in sports has given us American Airlines Arena and the Staples Center; are we about to see the Wal-Mart White House and the Halliburton Hall of Congress?)

So a confluence of events struck the Democratic Party this week: A clear rejection of their Wall Street and health reform strategies, and a Supreme Court decision - perhaps "brought to you by Philip Morris" - that forces them to choose between genuine electoral reform or tacking right to compete with Republicans for corporate sponsors.

It was encouraging to see the President shift dramatically on both topics this week, with his articulation of the "Volcker rule" and his forceful statement in response to the Supreme Court ruling. But it's in his nature to seek consensus, and consensus will be hard to find without confronting some difficult decisions first.

The window of opportunity is closing fast: We may have already seen the last American election where individual donors even matter. But if the President and his party rise to the occasion, this week may be remembered as the moment that meaningful change began.
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UPDATE: Glenn Greenwald has a considerably less apocalyptic view of the SCOTUS ruling than most people, including me, in part because things are already so bad. We present his comments as counterpoint, because I have such high regard for his judgment regarding the First Amendment. But his preferred solution is the same as mine - public financing of elections.

A New Player in the Banking Reform Fight: Citizens

Mike Elk — Thu, 11 Jun 2009 11:21:56 -0400

The fact that regular citizens have been largely excluded from the debate over financial regulation on Capitol Hill was underscored most vividly when Sen. Richard Durbin, D-Ill, said last month that "frankly the banks own the place."

But this week a coalition of citizens groups have taken the offensive, organizing to demand a seat at the table in making a bank system that works for all of us, not just corporate profiteers. As part of that effort, a group of organizations including Campaign for America's Future, National Community Reinvestment Coalition, and A New Way Forward met on Capitol Hill today to discuss a growing citizen's movement to bring the voice of working families to the debate over banking system reform.

Simon Johnson, former chief economist of the International Monetary Fund, argued at the event, at the Rayburn House Office Building, that financial reform is important not just to rebuilding our economy, but to fixing our democracy. As banks grow bigger through deals and mergers, they increase their ability to corrupt the political process through campaign contributions and lobbyists. The more banks grow, the more money they have available to use this influence lawmakers to write rules in their favor and prey on ordinary Americans through predatory lending and other practices. Most recently, we have seen a particularly gross example of this: grossest major banks using our taxpayer money via the bailout to lobby against very popular legislation that would allow judges in bankruptcy cases to readjust homeowner mortgages at current market rates.

Johnson argued that the sense of crisis that has driven a populist push to break up so -called "too-big-to-fail" banks this spring In the wake of the bailout and outrage over AIG bonuses scandals has diminished as the media drums up the myth that the economy is recovering. However, the financial crisis remains very real for ordinary Americans: Unemployment is on the verge of reaching nearly 10 percent and foreclosures are increasing as laid-off workers are unable to pay their mortgages.

Financial reform is one that we as a progressive movement need to begin dramatically organizing around, Johnson said. He estimated will be an approximately five-year-long fight. Similar fights over breaking up trusts in the early 1900's and regulating Wall Street during the New Deal took equally as long and required a great deal of public pressure to achieve real reform. The fight won't be easy, it will be long, it will require serious organizing done by citizens taking to the street to be heard in order to create a Wall Street that works for Main Street.

In this vein, the National Community Reinvestment Coalition and A New Way Forward are sponsoring over 100 events today throughout the country, from rallies to town hall meetings with elected officials to community organizing meetings. In Chicago, workers of United Electrical Workers from Moline, Ill. , whose factory Quad City Die Casting is being liquidated by Wells Fargo, are marching today threatening to occupy their factory, following the lead of workers who occupied and successfully reopened Republic Windows and Doors in Chicago back in December. As John Taylor, CEO of the National Community Reinvestment Coalition said, "In the era of 'too big to fail,' the public must be too loud to be ignored. Today's actions, in communities across America, loudly say that enough is enough—it's time to return integrity and trust to the financial system."

The fight over financial reform is important not just in reforming the financial system, but showing the progressive movement's ability to defeat special interests. At today's event, Mike Lux, author of the Progressive Revolution and honorary co-chair of a New Way Forward, argued In order for the Obama administration to be successful, it must be able to take on these big lobbies. Every time the administration succeeds in defeating one major lobby, it will make passing subsequent reforms easier. Lux argued that when you have early success against special interests, as FDR did in his first 100 days, it weakens the choke-hold that special interests often have on lawmakers.and makes passing subsequent reforms easier.

The fight over banking reform is a crucial battle in the progressive movement's drive to put people power back into the political process. Now is the time to get involved. Visit A New Way Forward and the National Community Reinvestment Coalition to see how you can get involved in events happening across the country.