Bucket Brigades & Bailouts

A talk with the Financial Democracy Campaign’s Tom Schlesinger

In 1988, several organizations working on banking issues met in Washington, D.C., to discuss developing a common agenda. Out of these discussions rose the Financial Democracy Campaign (FDC), a coalition of groups and individuals organizing a popular response to the S&L bailout and advocating long-term changes in the nation’s financial system.

Tom Schlesinger, one of the organizers of the FDC, now serves as its co-coordinator along with Steve Kest, the executive director of the national community group ACORN. Since 1986, Schlesinger has directed the Southern Finance Project, a North Carolina-based research center that works with a wide range of grassroots organizations, unions, journalists, and public officials interested in financial markets and policy issues.

Dollars & Sense collective member John Miller interviewed Schlesinger in February [1991].

What were the campaign’s goals at its inception?

We started out trying to get ordinary citizens’ voices into the debate over bailing out the thrift industry. Even though Bush and Dukakis didn’t talk about it on the campaign trail, it was clear that bailout legislation was likely to happen when Congress reconvened in 1989. In fact, bailout proposal was one of the new administration’s first major legislative initiatives. Our project was to formulate some democratic remedies for the meltdown of the S&L industry.

Upon that, we tried to build a set of broader proposals for financial reform. Our major theme then and the one that still packs the most political currency is that the partygoers of the 1980s ought to pay for their own party. Another theme is that regardless of who pays the damage bill, any bailout of the S&L industry also ought to bail out housing. We’ve completed a decade in which home ownership declined for the first time in generations and housing costs, rental costs, and homelessness have skyrocketed. That suggests there is still very much a role for institutions or financial instruments that make home ownership affordable.

Who was at the party? How much partying were they doing?

If you can believe anything economists say, the S&L party may cost from $500 billion to $1.4 trillion when all the accounts have been settled. The partygoers consisted not only of the crooks and the cowboys of the S&L industry, but also a broader set of beneficiaries—wealth holders and financial institutions—who won form financial deregulation. The most profound effect of deregulation was the highest real interest rates of this century, which served as a tremendous transmission belt of wealth from middle-class, working, and poor families to the rich.

How do you make them clean up their own party?

You place the tax burden of a bailout primarily on creditors and credit institutions rather than on most taxpayers who are debtors. We’ve endorsed a surtax on the wealthiest 1% to 2% of taxpayers. We’ve also endorsed the notion that financial industry actors who were responsible for S&L insolvencies should pay a special one-time fee. We’ve talked about creating a stabilization fund out of contributions across the entire financial industry for bailing out troubled institutions. These guys ought to take care of their own.

Ironically, a version of that idea is being presented by banking industry trade associations as their approach to strengthening the Federal Deposit Insurance Corporation (FDIC). They’re trying to prevent the appearance of seeking a taxpayer bailout.

How would your proposal help bail out housing?

Every actor in the financial industry who benefits from the taxpayer-protected financial marketplace ought to provide more public obligations. One obligation is to get serious about affordable housing by establishing a “home opportunities fund.” With this fund, every actor in the financial marketplace would make a mandatory small investment that yielded a below-market-rate mortgages for first-time home buyers and developers of rental housing for middle-, moderate-, and low-income renters.

What’s the status of this idea?

[Secretary of Housing and Urban Development] Jack Kemp swiped our name, but not our content. Other than that, we are using the idea to try to reframe the discussion about financial reform in a way that encompasses the entire financial industry and provides a set of benefits to the whole citizenry.

The administration’s treasury reform plan argues that allowing banks to get into investment banking and allowing more interstate banking would stabilize the industry. Do you agree?

They’re all such fatuous proposals. First, they are a direct denial of the financial lessons of the 1980s, which should have taught us that deregulation leads to a less stable financial system, higher interest rates, a poorer economy, and taxpayers holding the bag. The administration keeps talking about the product and geographic deregulation as modernization, but they are really an attempt to go back to 1982, when S&Ls were encouraged to “grow out of their problems.” And back to the 1890s, when commercial and financial firms could operate inside the same corporate structure and self-deal until the whole economy came crumbling down.

The Bush plan is also a denial of political lessons of the 1980s and the Republicans’ success in broadening their electoral base with unhappy middle-class and blue-collar voters. These are the swing voters who want their government to protect them from the ups and downs of the financial marketplace, not to expose them to more. The Reagan coalition is in many respects a fragile and unnatural one, and you have to wonder how the political calculus of banking reform will work out for Bush.

Given your sense that Bush’s bank reforms will fail and the FDIC will go broke, will there be a bank industry bailout?

We’ll have to see how sensitive the political community is to the specter of another taxpayer bailout. Banking trade associations are debating how to recapitalize the FDIC themselves because they’re under a tremendous amount of pressure, part of which politicians are generating. No politician wants to go before the electorate in 1992 and defend another bailout. I don’t want to sound Pollyannish, but I think our prospects for avoiding a taxpayer bailout are better than our chances were of heading off the S&L bailout freight train.

February was particularly busy for the FDC. What happened?

Our chairman, Jim Hightower, did a series of speeches in Iowa to kick off the campaign’s caucus efforts. [Hightower is a former Texas agriculture commissioner and leading advocate of populism. See “Building a New Populism,” Dollars & Sense, January/February 1990.] This is based on the seditious idea that the electorate, rather than campaign operatives, ought to define the issues in public life. Through Hightower and the campaign’s staff in Iowa, we want people who go to caucuses to insist that candidates speak to financial reform questions.

We also organized Valentine’s Day actions—some of them featuring S&Lvis (see The Short Run, page 5)—in cities across the country targeting North Carolina National Bank (NCNB), the money center Uncle Sam built. NCNB became the seventh largest bank in the country entirely as a result of federally assisted takeovers of S&Ls and banks, and it symbolizes the relationship between the biggest actors in the financial industry and the government.

NCNB’s geometric growth raises fundamental questions about who gets what from our system of government. If you’re an aggressive bank like NCNB, with teams of tax lawyers and the fastest-growing political action committee in the industry, it seems you get what you want. If you’re a middle-class family or a working stiff, your government is going to be considerably less generous. That’s not what Mr. Jefferson and Mr. Madison had in mind 200 years ago—it’s not even what Mr. Hamilton or Robert Morris had in mind.

How does a movement for financial democracy contribute to a broader progressive movement?

We need to expand our understanding of who got victimized in the Roaring ‘80s. The group of victims includes everybody who lost from financial deregulation, everybody who was on the losing end of the tremendous damage done to firms, families, communities, and the real economy by leveraged buyouts, takeovers, and Wall Street’s flim-flam.

If you proceed from that assumption, you are at least open to more potent organizing possibilities. In Texas, for example, we’ve worked with a group of very conservative and very disaffected small business owners who call themselves Citizens for Ethical Financial Institutions. They’ve had their credit supplies cut off at the knees by new banking institutions like NCNB [North Carolina National Bank] that are coming into the state as a result of federally assisted takeovers of banks and thrifts. When the loans window was slammed in their face, they reacted with a greater sense of entitlement than many of the traditional victims of the financial industry. They’ve created a little insurgency in Abilene. The same kind of things are happening in Seattle. A talk-radio host and a newspaper columnist have packed 800 to 1,000 people into town meetings to protest the S&L bailout and grill their congressional delegation with great effectiveness. What the Seattle Bucket Brigade have done is quite a bit more creative than one usually sees in progressive politicking.

I don’t want to say that every small-business-owning Republican is ready to make common cause under the banner of financial reform. But organizing in the crucible of financial fiascos gives us a chance to reach across dividing lines and form the foundation of a genuinely populist politics with staying power.

Is there a limited time for a movement for financial democracy to strike?

Yes and no. We have surely been presented with a populist moment, when it’s imperative to organize quickly. But we’d be kidding ourselves to think we’re going to instantly transform the political landscape. At the same time, the instabilities in the financial system are likely to recur in the 1990s. I don’t think the moment is going to go away very quickly given the remedies being offered by the president, Congress, the financial industry, and the press.