There are more than 15 million people unemployed and almost 2 million people set to lose their homes to foreclosure this year. But there is good news: the Wall Street banks are as profitable as ever and set to give out record bonuses this year. The taxpayer bailouts worked.
Congress is now debating a financial reform bill that is supposed to prevent this sort of disaster from ever happening again. Leaders in Congress are promising us tough measures that will put an end to “too big to fail” institutions and the other implicit and explicit subsidies that allow the Wall Street crew to get incredibly wealthy at our expense.
It’s still an open question as to whether this reform effort will just be a pointless source of greenhouse gas emissions. If the goal were to fix the financial system, then the process would not be difficult. But the halls of Congress are infested with financial industry lobbyists. As a result, the bills being put forward are written like the adjustable rate subprime mortgages that helped get us into this mess. The wording often leads to bills that do the exact opposite of the stated meaning.
For example, the wording of a section of the House Financial Services committee bill that was intended to regulate derivatives trading included an “end user” exemption. This exemption would have given Enron a green light to carry on its shady dealings in over-the-counter transactions out of sight of any regulators.
After a bill to audit the Federal Reserve Board garnered 311 co-sponsors in the House, the financial industry’s lobbyists got a member to put up an alternative amendment for an audit. The only problem was that this alternative “audit” bill would essentially have prevented an audit.
In another coup, there was an amendment put forward by Representative Paul Kanjorski that would allow the Fed to break up banks that pose a danger to the financial system. This garnered support from many who understood the bill to require the breakup of J.P. Morgan, Citigroup, and other “too big to fail” institutions.
But this interpretation wrongly assumed that the amendment actually had some meaning. The authors of this amendment contend that no breakup of these giants is required because they do not pose a threat to the financial system at this moment. This assertion is of course absurd, because at a point where the collapse of one of these institutions does pose a threat to the financial system it will not be of any benefit to break them up.
It wouldn’t have helped anything to break Lehman or AIG up into five different companies at the point where they were collapsing in September of 2008. The authors of these bills understand this fact – there are just treating the public like their subprime borrowers; suckers to be taken for a ride.
There are thousands of details that are a necessary part of any financial reform bill, but there is a simple way to know whether it was worth the effort. If the Wall Street banks are still in place, earning the same profits and paying the same bonuses, then there was no reform. There was just a pointless charade.
Much is still up in the air. To everyone’s shock, the bogus Fed audit amendment was defeated in committee. A determined effort by Alan Grayson, one of the real audit bill’s lead sponsors, along with impressive work from grassroots/netroots activists, hardened the opposition.
There is growing support to impose a modest tax on financial transactions. This tax would be a body blow to the Wall Street speculators while leaving middle class investors largely unaffected. It could also raise more than a $1 trillion over the next decade to help the country recover from the damage inflicted by the Wall Street crew.
It is possible to design financial reform that will actually implement the changes needed to have a more efficient and a more fair financial industry. There also is enormous public support for these changes. The question is whether the public will can be harnessed to overcome the financial industry termites that infest every corner of the capital.
DEAN BAKER is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy.
This column was originally published by the Guardian.