Financial Reform Inches More

by Chris Sturr | July 13, 2010

It now appears that with Scott Brown (our “populist” senator from Massachusetts) has agreed to support the reconciled version of the banking reform bill, once he wrested concessions favorable to Massachusetts-based banks like State Street and Fidelity. With votes from Susan Collins and Olympia Snow, Brown’s vote will make for the sixty votes necessary for the bill to move forward, despite the vacancy of Robert Byrd’s seat.

The bill is a mixed bag–not nearly what it ought to be, or could have been, but with some key provisions, especially on derivatives and consumer protection, that make it worth supporting.

In the cover article from our current issue, “Not Too Big Enough,” economist Rob Larson looks at the “too-big-to-fail” banks and how they got too big.  As Larson makes clear, the current reform legislation won’t address the factors and trends that led the six-odd TBTF banks to get so big. Economies of scale and scope give these banks market power, and political clout, that will continue to be problematic.  The article includes a nice timeline sidebar by outgoing D&S intern Jill Mazzetta chronicling the deregulation, mergers, and acquisitions that allowed the banks to get so big.

Jill also put together a table about the current banking reform that was also going to be a sidebar for Rob’s article. But as we went to press, the bill was still in flux (and it still is, somewhat). Click here to see the table, which we’ll update as the final details of the reconciliation bill come out. Jill looks at what made it into the bill, what didn’t, what got watered down, and what was never even considered (like the transaction tax John Miller wrote about in our March/April issue).

The irony of Scott Brown the self-styled populist (he campaigned in his pickup truck and implied that his Democratic opponent was elitist) extracting concessions for Massachusetts investment banks is pretty rich.  Robert Kuttner has a piece at Huffington Post asking Tea Partiers why they aren’t taking Republicans to task for backing the banks.  Kuttner makes the case that even though it is seriously weakened, the bill is worth support, and he urges Russ Feingold, one of the Democrats to oppose it as not enough, to support it: “[W]ith every passing day, the risk increases that Wall Street and the Republicans will kill more than a year’s legislative work. A defeat of this bill would mean that all of the carefully negotiated compromises are up for grabs. With Democrats expected to lose seats in November, anything that managed to pass would be even weaker.” Read the whole article.

On one of the blogs at The Nation, John Nichols takes on some of the Republicans’ rationale for opposing the bill–that it is “big government” and “socialist”:

Why are so many GOP senators so very determined to block the bill, which cannot be debated unless 60 senators senators support a cloture vote?

What’s the problem?

Republicans say that it is not that they oppose regulating Wall Street and big banks. Rather, the argument goes, they are afraid of big government — of the “socialist” sort that might actually try to accomplish something useful, as opposed to big government of the Dick Cheney bloated defense budgets and needless wars sort.

Senate Republican Leader Mitch McConnell says his caucus is fighting “to prevent the Democrats from doing from the financial services industry what they just did to the health care of this country.”

Once again, the conservative chirp goes, a modest measure must be blocked because it would put the country on the slippery slope to socialism.

South Carolina Republican Jim DeMint, the Senate watchdog for against all things social, is denouncing the bill as a “massive, ill-advised piece of legislation” that would make it harder for kids to get braces. Seriously.

Congresswoman Michele Bachmann summed things up when she outlined the “case” — alright, maybe the better word is “rant” — for opposing basic consumer protections and a few minor moves aimed to avoiding more meltdowns.

“This is breathtaking in the level of power that government will have over our lives when it comes to credit,” Bachmann said of the reform bill. “It gives government the authority to decide, for instance, how much a bank teller in Peoria, Illinois, will be making going forward because a pay czar will decide what anyone in banking will be able to make.”

Never mind that socialists fought against czars.

Read the rest of the post.

And Mary Bottari of BanksterUSA and the Center for Media and Democracy (and author of this article in our current issue) has a couple of nice posts on the BanksterUSA site about the reform.  The latest post asks readers to rate the reform bill;  some of the early responses are pretty interesting and lively.  The previous post talks about some hidden positive provisions, including “strong provisions that require extractive companies (oil, natural gas, etc.) to detail in their annual Securities and Exchange Commission (SEC) filings the payments they make to foreign governments,” and a provision requiring tech companies to report on “conflict minerals.” Read the whole post.

Last but not least, William Greider has a piece at the Nation website (not sure if it was in the print edition), “Battling the Banksters,” that captures the ways in which this bill is a mixed bag:

Hold the applause. The president would like us to celebrate his “Wall Street reform,” but the legislation is misnamed. Barack Obama did not set out as president to reform Wall Street in fundamental ways but to restore it. Judging by the largest banks’ booming stock prices and executive bonuses, he appears to have succeeded. The leading bankers expressed relief when they saw the reform package Congress cobbled together on June 25. Wall Street, loathed by citizens everywhere, dodged the bullet in Washington.

Congress followed Obama’s path and rejected the sterner measures that promised to actually change things. As with healthcare reform, the White House, joined by the Treasury and the Federal Reserve, spent much of its energy opposing more aggressive ideas or bargaining small-bore compromises. The president kept a low profile, saving himself for the victory celebration.

Despite the defeat of real reform, progressives should not despair—the future looks much brighter than the headlines suggest. Yes, Congress choked on the hard questions. But assuming the Dems pull together last-minute wavering votes, it will be a stronger bill than either the White House or the bankers had intended, thanks to public anger, popular mobilization and nimble pressure from reformers.

This is not the end of reform; it’s the beginning of a promising struggle to cut the financial sector down to tolerable dimensions and reduced power. The forces of reform demonstrated that they have the strength and especially the ideas to win this fight–just not this year.

Mainly, the legislation gives government regulators explicit authority to take tougher measures to curb Wall Street’s dangerous behavior, but only if the Fed and Treasury decide it’s a good idea. Don’t hold your breath. These same agencies failed massively to confront the rampant recklessness that led to collapse (many of them claimed not to have seen the trouble coming).

Read the rest of the article.

–Chris Sturr

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