Twenty months after the financial meltdown of 2008, the US.Congress is
moving ahead with its financial system reform. In the following weeks, the
Senate and House bills will be combined. While many details are still to
be ironed out around issues like derivatives and consumer protection, it is
clear that the legislation will not break up the massive banks that are
blamed with the crisis. President Obama says the legislation will ensure
the U.S. taxpayers never again bailout Wall Street, but Public Citizen’s
David Arkush says that until the banks influence on Capitol Hill is broken
up or countered, there is no way to guarantee an end to bailouts.
Produced by Jesse Freeston
Story Transcript
JESSE FREESTON, PRODUCER, TRNN: More than 20 months since the meltdown on Wall Street sent the global financial system into despair, the US Congress appears ready to pass its financial sector reform. In the time since the collapse and ensuing bailout, the country’s largest banks have quickly returned the massive profits of old, as was recently pointed out by comedian Jon Stewart.
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JON STEWART, THE DAILY SHOW: One sector of the economy appears to have stabilized.
CHRIS MATTHEWS, MSNBC: Bank of America, Goldman Sachs, Citigroup, and J.P. Morgan have just pitched a Wall Street equivalent of a perfect game. The big banks made money every single day last quarter, zero days of losses, no days in the red, every day in the black.
STEWART: Yeah, a perfect game, pitched by four separate teams on 61 consecutive days. It’s as though the rules are set up to make it illegal for the opposing team to use bats. You know what? I actually—I give up. You win. The banks win. We’re waving the white flag. Just take the [bleep] money. I don’t even care at this point. You know what? Take the flag. I don’t care. Just go. Make the money, take the money. The rest of us are going to start a nut-based economy.
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FREESTON: Amidst the profits, the US Senate went forward with its financial reform bill, to join the bill the House passed in December. We spoke to McClatchy Newspapers’ economics correspondent Kevin Hall.
KEVIN G. HALL, MCCLATCHY ECONOMICS CORRESPONDENT: In the coming weeks, the House and the Senate are going to narrow the differences between their competing visions for how best to revamp the financial regulatory system. One of the key areas of discussion is going to be what’s called a consumer finance protection agency, which will be—for the first time—charged with policing consumer credit, whether they’re mortgages, payday loans, credit cards, student loans, that sort of range of activities. It will create new rules, transparency, disclosures. A consumer is going to have information in front of them that is going to be a lot more easy to understand in terms of how I will pay my mortgage, what will happen to my mortgage at an adjustable rate.
FREESTON: On the Wall Street side, the bills are being hailed as the largest reform since the Great Depression. While that may be true, many say it doesn’t go far enough.
HALL: This bill stops short of fixing everything, and derivatives is one of those areas. For instance, there is no ban on what are called “naked swaps”, where, you know, you don’t have to own the underlying entity to take a bet out against it. That was one of the complicating factors in 2008 that really amplified our crisis here. It’s amplified the crisis in Europe. This bill doesn’t address that. There are a number of things like that that this bill will not attack head-on.
SEN. MARIA CANTWELL (D-WA): Today we’re at a $600 trillion derivative market—$600 trillion. Before deregulation it was a very small amount of money, and now we have this incredible market.
FREESTON: Maria Cantwell was one of two Democratic senators to vote against the bill.
CANTWELL: I know there’s other good parts of this legislation that people care deeply about. But if you have this $600 trillion market and you are not truly going to have exchange trading and clearing and aggregate position limits across all exchanges, you are not going to rein in the derivatives problem. You’re not.
FREESTON: David Arkush is a lobbyist for the consumer advocacy group Public Citizen. He says the bill’s shortfalls are the result of the power the banks have in Washington.
DAVID ARKUSH, DIRECTOR, CONGRESS WATCH: We looked at just one issue, derivatives. There is an 11 to 1 ratio of lobbyists working for the status quo for every single one who is working to reform the derivatives industry. The actual numbers are 903 lobbyists on that side to 79.
FREESTON: Outside of just derivatives, Arkush says the banking sector makes large use of government insiders in its lobbying efforts.
ARKUSH: The financial sector in 2009 hired 940 former government employees to lobby for them on this financial reform bill. So that’s 940 people who worked at a regulator or worked on a staff in a congressional office or a congressional committee or even a member of Congress. Seventy of these people were former members of Congress who were lobbying for the finance sector.
FREESTON: According to Arkush, this must be kept in mind when considering the bill’s strengths and weaknesses.
ARKUSH: After these banks plunged the economy into this horrible recession and destabilized the entire world financial system, they still have a tremendous amount of political power on Capitol Hill, and they have enough political power to stop the most fundamental transformations of their industry, the kinds that would definitely ensure that we won’t ever face a similar financial crisis.
FREESTON: President Obama has put his support firmly behind the bill.
BARACK OBAMA, (US PRESIDENT): Because of financial reform, the American people will never again be asked to foot the bill for Wall Street’s mistakes. There will be no more taxpayer-funded bailouts, period.
HALL: The biggest change in this bill, in both bills, is they address this issue of too-big-to-fail, the idea that a bank or a financial institution has gotten so large that its failure poses a risk not only to the US financial system but the global financial system. And this bill tries to make it more costly, in terms of the capital they have to set aside and any number of lines of businesses that they’re engaged in, make it more costly to be that big—in other words, given an incentive to get smaller.
OBAMA: If a large financial institution should ever fail, we will have the tools to wind it down without endangering the broader economy.
HALL: The Federal Reserve will have the powers, if it considers an entity so big that its failure poses a threat, to actually break up these entities. How that happens in practice is another issue, and we won’t know—we’ve never been there before.
FREESTON: Arkush is pushing for the biggest banks to be broken up immediately to at least lessen their influence in Washington.
HALL: Realistically, if it turns out that in three months one of the largest institutions, you know, Citigroup or JPMorgan Chase, suddenly is about to collapse because of their risky practices, there is going to be tremendous political pressure to bail them out anyway, because the threat that is going to be put out there, maybe by some who believe it but certainly by the lobbyists of the large institutions and all their friends and allies in the academy, the argument is going to be that if we don’t fix this situation now, today, if we don’t bail out this company now, tomorrow the next Great Depression Starts. That was the argument last time around. It’s going to be the argument next time around.
FREESTON: Former chairman of the Federal Reserve Alan Greenspan recently joined other analysts in declaring that the banks are in fact expecting the government to take such action in the future.
ALAN GREENSPAN, FMR. FEDERAL RESERVE CHAIRMAN: We are to the point where the solvency of our banking system is really no longer a concern of anybody, for no other reason that there is still a belief that the US government will step in and prevent a too-big-to-fail type of situation.
ARKUSH: The laws on the books don’t matter quite as much. If there are any loopholes or any ways that the regulators can bail them out, you know, they’ll face tremendous pressure to actually do it and to sort of do it any way they can finagle. If there isn’t, you know, any sort of authority to bail them out on the books, there’ll be tremendous pressure on Congress to immediately amend the law and allow a bailout. They—you know, Congress did authorize a bailout the last time around. There’s, you know, plenty of reason to think, given the right circumstances and the right political pressure, they’d do it again.
FREESTON: While neither the House nor the Senate bills calls for such a breakup, there are many details that are yet to be worked out between the two. So as they go into conference committee, reform advocates like MSNBC’s Dylan Ratigan have raised concerns about those chosen to sit at the table.
DYLAN RATIGAN, MSNBC: —a list for you today, the Senate releasing the names of the 12 senators who are going to decide the fate of financial reform on their side in conference. Making the cut, our favorite foe of true reform is Senator Judd Gregg, who will lie to your face about how America’s paid back the money, even though he knows full well that we haven’t and never will, facilitating the largest transfer of wealth in the history of our country. And then, of course, bankster banking chairman Chris Dodd, who has fought every effort to either break up the banks, deal with too-big-to-fail, deal with leverage, deal with transparency, you pick it, no thanks. Not allowed in the room, of course, true white nights like Maria Cantwell, Bernie Sanders, Jeff Merkley, Carl Levin, the list goes on. Whoever you can think of that might actually be in favor of real financial reform, structural reform, not even in the room.
FREESTON: According to the Center for Responsive Politics, the senior Democrats named to the committee, Chris Dodd and Charles Schumer, together have received more than $30 million in campaign contributions from the finance, insurance, and real estate sector in the last 20 years, the most of any member of Congress who hasn’t been a presidential candidate.
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