Ted Kaufman

At Last! Simple New Test Shows If Your Politician's Telling the Truth About "Too Big to Fail"

Richard Eskow — Fri, 30 Apr 2010 14:35:56 -0400

We thought we'd write a little radio ad for the SAFE Banking proposal being put forward in the House and Senate. But this ad's not just promoting a policy - it's selling a litmus test. This amendment finally gives us a chance to find out whether those politicians who are giving great speeches about "too big to fail" and "no more bailouts" mean what they say or not. So imagine you're listening to the radio and you hear this ...

Financial reform: It's so confusing! CDO, MBS, CDS ... it's like alphabet soup out there! Sure, we hear politicians in the House and Senate say they want to stop "too big to fail." They say they don't want to bail out rich, greedy bankers again just so they can give themselves more fat bonuses. They all say that. Then they fight each other tooth and nail! How's a poor voter to know who's telling the truth?

After all, it's not like we have all the time in the world. The economy's still in rough shape for most of us, thanks to the greed and recklessness of the big banks and their political enablers. So we're either working two jobs to make ends meet, or doing the work of two other people who have been laid off at our company(1) for no extra pay, or we're scrambling to find work ... something, anything ... before our unemployment runs out.(2)

Fortunately, now there's a simple test for the rest of us. You can apply this test to any member of the Senate or House of Representatives - and you can do it without having to take a break from the frantic fight for survival the big banks and their enablers have made of your life. This quick, easy-to-use test can be applied from the comfort of your own home (if you still have one), from that third job you've got to work every evening (too bad you can't help the kids with homework anymore) ... why you can even use it while you're waiting on line to collect the last of your unemployment benefits!

As long as there's a television droning away in the waiting area while you wait for that job interview, or a newspaper somebody left behind on that park bench, as long as you can learn how your politician voted, you can learn whether he's really on your side or just another bank lackey.

Here's the test: Will they vote to break up the big banks or not? It's as simple as that ... really.

Alright, that's the radio spot. Here's the detail.Yesterday Sens. Ted Kaufman and Sherrod Brown officially introduced an amendment that limits the size of banks and the amount of risk they can take. Under this amendment, no bank could become either so big or so leveraged that its collapse could threaten the economy. That means no more "blackmail bailouts," where the government either has to rescue a reckless and greedy institution or see the economy collapse. An identical amendment was introduced in the House by Reps Brad Miller, Keith Ellison, Steve Cohen, and Ben Chandler.

Reading the amendment's accompanying explanation (below) is a breath of fresh air. What's striking about the proposal is how simple and effective it is. No bank could hold more than 10% of the nation's deposits, nor could it leverage (take risks with) sums that amount to more than 2% of the GDP. As Mike Konczal explains (with nice graphs), that covers pretty much every smokescreen argument out there about why making banks smaller really wouldn't solve the "too big" problem. Together with the leveraging requirement, it's simple common sense.

What's also striking is how few institutions it would affect. Only the three biggest banks would be affected by the size limit, and the cap on liabilities would only affect an estimate nine institutions or so. There's also a requirement that banks have more capital on hand to cover their leveraged assets, but that's a relatively modest 50% increase over current requirements.

This is not a revolutionary shakeup of the financial sector. It's a simple, common-sense solution that helps us manage the enormous risk posed by freakishly large banks. And, as Sen. Kaufman observes, we've broken up risky institutions before.

These amendments offer our representatives in the House and Senate a simple choice: Support a safer and more rational banking system, or be counted among those whose votes are being swayed by the influence of Wall Street money. And they give the rest of us an invaluable tool. We'll be able to see whether our leaders really means those words about "too big to fail" and "no more bailouts" by seeing whether or not they vote for these amendments.

If they do, they've passed the test. If they don't, they've failed. Simple as that.

Here's the greatest benefit this new test offers to frustrated voters everywhere. It lets us say to politicians, once and for all, on one of the most crucial issues of our day, those words every citizen longs to say to a long-winded public servant:

Put up or shut up.

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(1) Alan Greenspan, perhaps the greatest architect of today's economic chaos, wrote this: "The ultimate goal of financial structure and regulation in a market economy is to direct a nation's savings ... towards investments in plant, equipment and human capital that offer the greatest increases in a nation's output per hour." Presumably that includes overworking employees ...

(2) There's concern that Democrats are now prepared to abandon further extensions in unemployment payments, despite evidence of systemic long-term unemployment in certain sectors and regions. As Dave Johnson notes, Max Baucus said "I think 99 weeks is sufficient." He meant "sufficient" for helping the unemployed, not "sufficient" as in "we need to do everything we can to help these people." The same article added, "Some Republicans say cutting off aid will spur people to find work."

One unnamed Senator added, "Are there no workhouses? Are there no prisons?" (Alright, that was Dickens. Same difference.)

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.