The progressive moment for this generation is waning fast. As we approach the mid-point of the first Obama term, little has been accomplished that would inspire full-blown and unabashed enthusiasm, especially on the political left. Immediate economic disaster has seemingly been averted, but only by rescuing Wall Street and reaffirming business as usual. Something called health reform has been enacted, but only by effectively bribing the pharmaceutical and insurance industries, and guaranteeing their primacy in the system. Productivity is up and stocks have rebounded, pleasing big business, but well-paying and secure jobs continue to wither away. The underlying inequities of American-style corporate capitalism persist unabated, leaving fundamental economic change a dream and not a reality.
There are an abundance of villains out there to blame. Nevertheless, the prime responsibility rests on the sagging shoulders of the Democratic party, which controls the White House and the Congress for the first time in two decades, yet appears incapable of using its newfound power and position to alter the dynamic. Its opponents are no mystery; Republicans are servants of the corporations, plain and simple, and make little effort to disguise the fact. Democrats, on the other hand, represent the Jekyll-and-Hyde party of contemporary politics; they run as populist liberals and, often as not, govern as corporate conservatives.
The issue of the moment, financial regulation, illustrates the dichotomy. Defeat of the amendment to the Senates financial-reform bill offered by Senators Sherrod Brown (D-Ohio) and Ted Kaufman (D-Del.), which called for shrinking or breaking up the nations too-big-to-fail (TBTF) banks, should tell Americans everything they need to know about the bipartisan corruption of our federal government and the split personality of its majority party. The besieged big banks were saved by the votes of virtually all Senate Republicans (33 of 36 voting), but also by nearly half of all Senate Democrats.
The rationale that allowed 27 members of the so-called party of the people to oppose reducing the influence of the institutions responsible for the worldwide financial collapse and subsequent recession was that US bankings movers and shakers must remain internationally competitive, that they must be kept large enough to wheel and deal in the world marketplace. This presupposes their primary role to be global banking and financing the multinationals, not servicing the domestic economy, whose businesses and consumers still cant get the loans they need.
The Brown-Kaufman proposal would have capped the amount of non-deposit liabilities of any one bank that is, what it could leverage (borrow) for investing or, if you like, for making risky market bets to an amount equal to 2% of the gross domestic product (GDP). It would also have strictly limited any banks share of the nations deposits to 10%, a limit presently exceeded by three of the TBTF banks, Wells Fargo, Bank of America and JP Morgan Chase. Thanks to the taxpayers, all six of the TBTF behemoths (Citigroup, Morgan Stanley, and the infamous Goldman Sachs being the other three) are even larger, more dominant, and more profitable than they were prior to the TARP bailout, a concentrated expansion resulting in large part from government-funded recapitalization and post-bailout mergers. And all are back in the old pie-crisis gambling mode, trading in derivatives and developing new classes of exotic credit instruments. In short, theyve learned nothing.
It shouldnt take a genius to conclude that what weve got is TBTF on steroids in dire need of a political solution. That solution, one might expect, would come from the Democratic party with its progressive pedigree dating back to the 1930s. But this is a different time and a different party makeup. Congress, in general, and the Senate, in particular, have Democratic majorities, but not progressive majorities attuned to New Deal precedents. As in health-care reform, when Brown-Kaufman faced its ultimate test, the usual suspects emerged to protect corporate America. See if any of these Democratic names ring familiar: Max Baucus of Montana, Evan Bayh of Indiana, Kent Conrad of North Dakota, Dianne Feinstein of California, Mary Landrieu of Louisiana, Ben Nelson of Nebraska. The ranks of the Democratic crypto-conservatives even included Connecticuts Chris Dodd, the partys erstwhile leading banking reformer.
Expect things to worsen as financial reform proceeds to conference, with Senate Banking Committee Chairman Dodd playing the Max Baucus role in watering the legislation. The financial sector desperately needs a reimposition of some form of the 1933 Glass-Steagall Act, which separated commercial and investment banking until its repeal in 1999 turned banks into gambling houses; were not apt to get it from this Congress despite the endorsement of iconic former Fed Chairman Paul Volcker. Volcker, the only member of the presidents economic team who appreciates the gravity of the moment, may achieve passage of a stopgap measure banning proprietary trading (banks speculating in capital markets on their own account with their federally insured deposits), but not a full divorce of traditional S&L banking from risky brokerage and underwriting activities.
True financial reform also requires a severe restriction or an outright ban on trading in derivatives, the dangerous funny-money securities and credit swaps that no one really understands and that contributed mightily to the great unraveling. Instead, congressional leaders are talking about creating transparency through open derivatives markets. Great; we still wont understand derivatives, but well be able to see them traded on exchanges and not behind closed doors. As always, transparency is the classic excuse for not acting. Since the public has neither the time nor the knowledge to follow the intricacies of financial transactions, and since regulatory agencies will be too understaffed to do so effectively, the bankers will be able to follow their bliss unimpeded.
Finally, real progressive reform requires a strong, independent stress the word independent consumer financial-protection agency (CFPA), a rule-making body of the sort devised by Prof. Elizabeth Warren, head of the congressional TARP oversight panel. Dont plan on it. The legislation that passed the Senate includes a CFPA all right, but makes it a supervised bureau and places it within the Federal Reserve under the watchful eye of Fed Chairman and big-bank advocate Ben Bernanke. If all goes according to arrangement, it will languish there in the shadows, the toothless, half-starved stepchild of centrist Democratic banking reform.
Wayne OLeary is a writer in Orono, Maine. He holds a doctorate in American history and is the author of two prizewinning books.
From The Progressive Populist, July 1-15, 2010
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