A patch for Wall Street's bad habits

By Harold Meyerson
Wednesday, May 19, 2010

The Senate is poised to vote this week on amendments to the financial reform bill that will determine whether Wall Street's banks will serve the American economy or whether the American economy will continue to serve Wall Street's banks.

As they prepare to vote, senators might look at the latest report from the Congressional Oversight Panel on the TARP, chaired by Elizabeth Warren. Last week, the panel released a study of how America's banks used TARP funds to provide loans to small businesses. Lending by the biggest banks -- those with assets of more than $100 billion, which received 81 percent of government bailout funds -- declined, while lending to small businesses from medium-size banks, with assets of $10 billion to $100 billion, which received 11.4 percent of the bailout, increased.

The money that goes to Wall Street, apparently, stays on Wall Street -- one very good reason Wall Street's relationship with the rest of us is up for revision.

Some of the amendments under consideration would give consumers a fairer shake in dealing with banks -- notably, one from Democrat Sheldon Whitehouse (R.I.) that would enable states to cap interest rates on residents' credit cards.

A slew of amendments seek to prohibit federally insured banks from the kinds of wheeling and dealing for which taxpayers had to cover their losses during the near-meltdown of 2008. Democrats Jeff Merkley (Ore.) and Carl Levin (Mich.) authored a provision to ban federally backed banks from trading securities on their own behalf (the "Volcker rule"). Democrat Maria Cantwell (Wash.) and Republican John McCain (Ariz.) proposed rebuilding the old Glass-Steagall firewall separating commercial from investment banks. The provision by Democrat Blanche Lincoln (Ark.) to prohibit federally insured banks from trading in derivatives is already incorporated in the omnibus bill, but Banking Committee Chairman Chris Dodd has proposed referring the issue to a commission that will probably kill it.

In a sense, measures such as Lincoln's mark the return of the Democratic Party to its Jeffersonian and Jacksonian roots. The leaders of the 19th-century Democratic Party railed against the concentration of wealth and power that they identified with the big banks of their day. Theirs was partly a provincial opposition, reflecting the antipathy of America's farmers to the banks that exploited them and to the increasingly polyglot cities where the banks were based. But the Great Depression unified farm and city in a larger anti-bank coalition. With the coming of the New Deal, the cause of financial reform lost its provincialism. The primary author of the New Deal legislation establishing the Securities and Exchange Commission, Democrat Sam Rayburn (then chairman of the House Interstate Commerce Committee, later a legendary House speaker), kept two photos on his desk in his Bonham, Tex., home: one of Robert E. Lee, the other of Franklin Roosevelt.

Over the past half-century, of course, Democrats have lost their ancestral affinities for Lee. More problematically, at least at moments like these, they have grown to encompass much of the very same Wall Street crowd -- the onetime Rockefeller Republicans -- against whom rural populists and urban liberals once united in common opposition. The idea that the banking sector has become too large and too powerful for the nation's good still appears not to have crossed the minds of some prominent administration officials (Tim Geithner) or such center-right Democratic senators as Evan Bayh (Ind.) or Mark Warner (Va.), who have sought to weaken amendments that rein in the banks' riskiest practices.

Opponents of such reforms have time-honored ways of killing them softly -- the most logical graveyard being the conference that reconciles the House version of the bill, passed in December, with the Senate version. House Financial Services Committee Chairman Barney Frank (D-Mass.) has proposed televising the conference to help limit such offstage gutting. The White House, however, reportedly favors scrapping the conference in favor of an informal dialogue between House and Senate leaders, ostensibly to speed deliberations. It would also cloak them in a darkness not exactly conducive to the most far-reaching reforms.

So complete is the decoupling of Wall Street's interests from those of its country that reforming the banks isn't merely a Jeffersonian (or Rooseveltian) cause. I doubt that even Alexander Hamilton, who championed finance to build up American industry, would support a financial sector that helped offshore manufacturing. By the tenets of virtually every American ideology save greed, it's time to rein in the banks.


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