The Way Forward

COALITION VOWS TO BUIILD ON OBAMA'S CALL FOR REAL REGULATORY REFORM

OurFuture.org Staff — Wed, 17 Jun 2009 13:32:46 -0700

Americans for Financial Reform, a national coalition of more than 200 state and local organizations, including the Campaign for America's Future, dedicated to reforming the financial system and rebuilding our economy., released the following statement today in response to President Obama's proposals for financial industry reform.

President Obama has proposed sweeping, important, and positive changes to the ways in which financial markets are regulated.

Real reform means reining in the anything-goes atmosphere that has characterized this era on Wall Street, replacing it with a comprehensive system to police the financial industry and protect the public. To provide real security for the American people this regulatory system must be truly airtight, leaving no room for leaks and loopholes that the hedge funds, derivatives traders and others are already trying to carve out. Congress must ensure that what comes out of the legislative process is not just window dressing.

We are pleased that the President recognizes that real reform also means putting in place a watchdog to ensure that ordinary Americans have the same level of security when they sign on the dotted line for products like home mortgages and credit cards that they rightly expect when buying anything from a toy to a toaster oven.

As the legislative process moves forward, we hope to strengthen and build on the President’s proposal. We will work toward more meaningful reform of credit rating agencies. We will also be fighting for stronger measures than the Administration has put forth to help keep struggling families from losing their homes. Without more effective strategies to keep people in their homes, our nation will continue to face the catastrophe of millions of mortgage foreclosures. We are pleased that the President’s plan calls for the new watchdog agency to work with the Department of Justice to enforce the nation’s civil rights statutes. However, any regulatory reform proposal must include broader measures to further fair housing and ensure that under-served markets will not continue to be incubators for predatory behavior that can ultimately imperil wider markets.

The Administration’s proposal vests the Federal Reserve with many new powers aimed at controlling system-wide risk. To that proposal, Congress must add strong measures to ensure the Federal Reserve is truly independent and responsive to the public. We must open up and democratize the Federal Reserve so that it is publicly accountable.

President Obama has taken an important first step toward restoring integrity and fairness to our financial system, but the battle for reform has only just begun, and we have no illusions about the difficulty of the fight to come. Our principles will only prevail if the voices of the public are heard over those of bankers, traders, mortgage brokers and their armies of lobbyists.

Grassroots Campaign to Clean Up Wall Street

Isaiah J. Poole — Wed, 17 Jun 2009 10:47:16 -0700

A national coalition of nearly 200 state and local organizations—ranging from financial experts to community advocates—have kicked off a major campaign to reform our financial system and rebuild our economy.

They are operating under the banner of Americans for Financial Reform, and at a news conference Tuesday, heard here, some of the coalition members explained how they intend to change the political dynamic that up to now has allowed Wall Street bankers to write the rules for themselves.The coalition will fight for real changes that get at the root causes of this financial crisis, including lack of protection for consumers and an oversight system that is not up to the job.

Featured in this audio of the news conference is Jim Carr, Chief Operating Officer, National Community Reinvestment Coalition; Rob Johnson, economist with the Franklin and Eleanor Roosevelt Institute; Ed Mierzwinski, U.S. PIRG’s Consumer Program Director; and George Goehl, Executive Director, National People's Action.

Americans for Financial Reform calls on Congress to put in place a strong watchdog structure with the resources and authority to police Wall Street and protect our financial security. The goal is to obtain reforms that keep people in their homes and prompt smart investment in communities and businesses that create good jobs and strong neighborhoods.

Financial Reform: Up To Us To Change The Game

Isaiah J. Poole — Wed, 17 Jun 2009 09:16:50 -0700

There's a reason why lawbreakers don't get to negotiate the terms of their punishment or their parole. There is no bartering to be done between the protectors of law and order and the violators of law and order. There are only two basic questions for the person who dared to stand outside the law: What is required of you to atone and what must be done to prevent that lawbreaking from recurring.

Viewed from that perspective, President Obama was well within his rights to not invite the financial industry to help him write the regulatory restructuring proposals that his administration released today. Given the extraordinary level of plunder and vandalism that the biggest names in finance did to our economic system, Wall Street has no moral authority to dictate the terms of their restoration to respectability.

But Wall Street does have a still-formidable political machine that can cause members of Congress to quake. According to Ed Mierzwinski, the consumer program director of U.S. PIRG, the financial services lobby spent $42 million just in the first quarter of 2009 on trying to block reforms that would curb their reckless behavior. That show of force kept the Senate from taking such modest steps as as allowing courts to roll back usurious interest rates on mortgages when those rates drove homeowners into bankruptcy.

AUDIO
News Conference

Activists explain the goals and activities of a new coalition to push progressive reform of the financial services industry. Featured are Jim Carr, chief operating officer, National Community Reinvestment Coalition; Rob Johnson, economist with the Franklin and Eleanor Roosevelt Institute; Ed Mierzwinski, U.S. PIRG’s consumer program director; and George Goehl, executive director, National People's Action.

So Obama, saying in a television interview that "we don’t want to tilt at windmills," has opted to present a plan that is constrained by a snapshot of what's politically possible today, rather than one that would rally progressives to challenge and enlarge the political paradigm.

That progressive rallying point will thus have to come from Americans for Financial Reform, a group of 200 grassroots organizations that is standing both as an advocate for bolder, people-centered financial reform proposals. (The Campaign for America's Future is a member of the coalition.) Drawing from a broad range of labor, consumer activist and progressive political organizations, this financial reform coalition is likely our best hope for tearing down that windmill of Wall Street power that Obama is hesitating to confront.

That is not to suggest that the Obama administration's plan is all bad. Some elements, such as the creation of a new consumer financial protection agency, are quite promising. And defending what's good in the administration plan will be a sizable fight in and of itself.

The U.S. Chamber of Commerce, for one, will vigorously oppose the creation of that watchdog agency. David Hirschmann, president of the Chamber's Center for Capital Markets Competitiveness, was quoted by Congress Daily as saying such an agency would signal to consumers that certain financial transactions are safe and "that they don't have their own responsibilities for due diligence." Yes, not having a consumer watchdog worked really well for investors during the reign of Bernie Madoff and other Ponzi schemers, or for homeowners duped into buying subprime mortgage loans, often on the basis of race.

But while we fight off the disingenuous arguments by such business interests as the Chamber of Commerce, we have the bigger struggle of expanding the political limits of what's possible.

One area where that should be easy is in reining in the powers of the Federal Reserve, which under the Obama administration's proposals would be formally expanded. The Financial Times notes:

The Fed will be charged with looking at risks to the system as a whole, with a focus on core banks and markets. It will retain direct supervision of the largest bank holding companies - something the Bush administration had proposed taking away. The Fed will also directly supervise non-bank financial companies that reach a similar size or complexity, and is likely to have the final word on bank capital requirements.

The emphasis on the Fed is controversial in Congress, where some critics fault the Fed for not exerting its regulatory powers more vigorously in the run-up to the crisis and others worry about the implications for Fed independence. Mark Warner, a Democratic senator, told the FT that systemic risk authority should be vested in the council of regulators instead.

Rob Johnson, an economist with the Franklin and Eleanor Roosevelt Institute, said at a news conference Tuesday by Americans for Financial Reform that the Fed "needs to be publicly accountable to society," especially in light of the insider deals that committed trillions of dollars to propping up the likes of AIG and Citigroup without meaningful say-so from Congress. And if the Fed cannot be held to such a level of accountability, it should not have that level of unbridled power.

The principles that the coalition is fighting for—or, put another way, the yardstick that the administration and congressional reform proposals must be measured—are well stated in an article by economist and former Labor secretary Robert Reich on TPM: Stop bankers from making huge, risky bets with other peoples’ money; prevent any bank from becoming too big to fail; and root out conflicts of interest in ratings of financial instruments, in sharing of financial advice and in the selection of leaders of the regional Federal Reserve banks. Reich continues:

These three reforms will reduce the possibility that you and I and other taxpayers will ever again have to spend billions bailing out bankers who robbed us blind while amassing fortunes. But because that would make it next to impossible to make such fortunes in the future, the big bankers will fight every one of these with all guns blazing, and their lobbyists in full force. They’ll try to inundate you in a blizzard of buzz words. They want your eyes to gaze over, but don’t let them. Keep focused on these three issues. Congress, for its part, may not be much help. It’s awash in money from Wall Street. Big Finance is second only to the health-industrial complex in owning a large portion of the Hill. Barney Frank at House Banking can be relied on to try his best but others in the House and Senate may well roll over. The President wants to do the right thing but he’s spread thin and spending political capital on health care. Tim Geithner doesn’t have the stomach to take on the Street; the plan he announced a few days ago to regulate pay is a bad joke. Expect lots of blather about rearranging boxes on the regulatory organization chart.

In other words, he concludes, this fight will be about as big as the battle over health care, and it will demand every bit of our vigilance and engagement.

On that score, some positive things are already happening, George Goehl, Executive Director, National People's Action, said Tuesday that last week there were rallies around bank reform in 50 cities. In the near future, ACORN is planning events in 15 different cities, and the coalition has succeeded in getting Federal Reserve staff members to participate in 10 town hall meetings in which victims of the financial crisis will be able to tell their stories.

"This provides a clear which-side-are-you-on moment for the administration and Congress," Goehl said.

It also provides a moment for the progressive movement to prove that when the Obama administration limits itself according to the state of the political game of the moment, we have the power to change the game.

A New Player in the Banking Reform Fight: Citizens

Mike Elk — Thu, 11 Jun 2009 08:21:56 -0700

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.

The U.S. Chamber of Commerce: Threat To Capitalism

Eric Lotke — Thu, 11 Jun 2009 07:42:23 -0700

The U.S. Chamber of Commerce launched yesterday “a sweeping national advocacy campaign … to defend and advance America’s free enterprise values in the face of rapid government growth and attacks by anti-business activists.”

The Chamber of Commerce doesn’t get it. They aren’t defending capitalism and free enterprise. They are all but destroying it.

Free-market fundamentalists don’t understand that capitalism is a system. It has rules, boundaries and obligations. When those rules are broken, the system falters.

• It’s not football without lines to mark touchdowns and out of bounds.
• It’s not basketball without a referee to call the fouls.

This is more than just a sports metaphor. Capitalism won’t work unless a negotiated price and promise to pay $100 is followed by payment of $100. And someone needs to enforce those rules. Otherwise it's not capitalism. It’s robbery.

These rules operate at every level.

• My AAA bond valued at $100 million actually needs to be worth $100 million, and it needs AAA assurance of quality — not conflicts of interest where companies issuing securities pay the agencies for their ratings.

• My “mortgage-backed security” needs to be backed by an actual buyer with an actual stake in real property — not bankers whose interest is in transaction fees from bundling, re-bundling and sales.

• My tomato should be free of salmonella, my toys should not have illegal levels of lead-based paint, and my pet food should not be infused with toxic melamine.

If nobody enforces those rules, the system starts to break down. That’s what’s happening now.

A generation ago, free-market ideologues decided that markets could police themselves and regulate themselves. They said history had finally invented something that was truly-self correcting. So they took the police off the beat and slandered as socialism every effort to enforce rules or enforce the reliability of promises.

Look at the result. Now we need to save capitalism from itself.

“We’re launching this campaign,” declared Thomas Donahue, President and CEO of the U.S. Chamber of Commerce, “because those who make or influence economic policy must understand that a productive, competitive private sector is not something they can take for granted.”

That’s precisely the point. A productive, efficient private sector is not something we can “take for granted.” It is something we need to fight for.

We need to fight against anti-competitive monopolies, fight against regulatory agencies captured by the industry they are supposed to regulate, and fight against industry groups that break the rules in the name of freedom.

Freedom isn’t free. The crisis interventions of recent months were needed to save capitalism from itself. The Chamber of Commerce got exactly what it wanted these last few years. We need to stop them before they kill again.

Message to Congress: Break Up The Banks

Isaiah J. Poole — Wed, 10 Jun 2009 08:53:17 -0700

Economist Simon Johnson says it will likely be a long struggle to get the financial system functioning as it should so that it no longer can behave in ways that endanger the entire national and global economy. A key event in that struggle takes place in Capitol Hill on June 11, when he and other progressive financial industry experts speak at a forum billed as "community people pushing policy people" on the subject of re-regulating the financial services industry.

The event is part of A New Way Forward, a nationwide mobilization effort that declares that "it is time to break up the banks." More specifically, the series of rallies, forums and town hall meetings that began this week is promoting a three-pronged agenda of nationalizing, reorganizing and decentralizing banks and other financial institutions.

Johnson, a professor at MIT's Sloan School of Management and a senior fellow at the Peterson Institute for International Economics, says in this interview that banks should be treated like nuclear power plants, "tightly regulated" to protect consumers and the economic system as a whole. "You don't want excessive or even a high level of risk in the core of that sector," he says. "It's way too dangerous."

Johnson, one of the contributors to the economics blog Baseline Scenario, also says that he sees troubling signs in news that the Obama administration appears to be backing away from some more audacious proposals for reforming the regulatory structure under which banks operate. Johnson said administration insiders are torn between aggressive reformers such as Sheila Bair, the outspoken director of the Federal Deposit Insurance Corporation, and status quo defenders such as Treasury secretary Timothy Geithner. "Part of what we're trying to do in our public discussion is side with the Sheila Bair line of argument, and try to strengthen their position."

The Capitol Hill event begins 9 a.m. June 11 in the Gold Room of the Rayburn House Office Building. The event is scheduled to be webcast. The Campaign for America's Future is a supporter.

Wall Street Journal Throws Citi Under The Bus

Robert Borosage — Wed, 10 Jun 2009 06:51:46 -0700

I stopped reading The Wall Street Journal editorial page when it soared off into wingnuttery, writing tomes on the imaginary conspiracy to off Vince Foster and other fantasies. The news pages remain useful; the editorial page hasn't improved much.

But as they say, even a monkey at a typewriter eventually will write something interesting. And on Tuesday, the lead editorial of the Journal, "Making Failure an Option," made a strong argument.

The big banks are lining up to pay back the money Treasury gave them under TARP, the Troubled Asset Relief Program, after passing the Treasury's softball "stress test." Eager to avoid any restrictions on pay, bonuses or activities, they are rushing to declare their health and independence.

The Wall Street Journal would allow them to get out from under the Federal thumb and go free, so long as they give up all the other guarantees and subsidies provided by the government (with the exception of deposit insurance).

PODCAST

Economist Simon Johnson explains why banks should get the same treatment as nuclear power plants and spells out the goals of a Capitol Hill meeting he will be speaking at Thursday sponsored by a coalition that aims to "break up the banks." Learn more.

But this raises the fundamental question of what economists call "moral hazard," only multiplied many times over. These banks have been deemed officially as "too big to fail." When they operate, it is with the implicit backing of the U.S. Treasury. They will be able to borrow money more cheaply as a result, and will be tempted, big time, to take greater risks. Risk and leverage create the potential of bigger bonuses for bankers. But they can gamble with their losses implicitly covered by taxpayers. This is a recipe for renewed catastrophe.

There are different ways out of this box. Some, like Federal Reserve Governor Daniel Tarullo, suggest that "too big to fail" should mean too big to exist, and that the Congress should break up the big banks into smaller, simpler, more transparent entities. Others, like Nobel Prize winner Joe Stiglitz suggest treating banks like public utilities, regulating their activities and fees strictly. Isolate the venture capital function to operate separately, but turn banks back into a version of the savings and loans of the old days. Others, like Paul Krugman and Robert Kuttner, suggest that the big banks should be treated like we treat any banks that are insolvent: take them over, strip away the bad assets, fire the management, reorganize them, merge them or sell the sound bank off at the end of the process.

The Treasury Departments under both Bush and Obama decided against taking over and reorganizing the big banks. Instead both chose to subsidize them and nurse them back to health. Congress and the administration are turning their attention to new regulations for finance, but congressional action won't take place for a while—and initial proposals don't include either a lid on size or turning the big banks into public utilities.

Just telling them they are on their own won't work, the Journal rightly concludes. The markets won't believe it. So the Journal suggests, why not let one of them fail? And then it nominates Citigroup to be thrown under the bus.

"Resolving Citi—by either forcing it into a strategic partnership, if anyone will have it, or selling off its assets and breaking it up—wouldn't be cheap," the WSJ editorialist writes. But it would eliminate one of the leading "zombie" banks, end the "slow bleeding of taxpayer money into the bank," and send the banks a message: You are on your own and we really do mean it.

Citibank is essentially already owned by the Federal Government. As the paper notes, it has received insurance on $300 billion in deposits, some $63 billion in FDIC-guaranteed debt, and another $300 billion or so in taxpayer guarantees of its toxic assets, $45 billion in direct capital injections, and more. It is, along with Bank of America, the weakest of the major banks. And Citibank has a checkered history of needing bailouts from huge bad bets—from the time it speculated on Russian bonds on the eve of the Russian revolution to betting on loans to Latin American governments in the 1980s, to needing bailouts twice in the most recent crisis.

Treasury has joined with the banks in peddling confidence, so it is unlikely that the editorial writer's advice will be taken. But that leaves the question: If the banks are free of the TARP but officially too big to fail, what is to keep them from taking larger and larger gambles with other people's money, knowing that they pocket the profits and taxpayers will cover their losses? You don't have to believe in Vince Foster conspiracies to think this is a question that deserves a straight answer.