Suddenly, the agenda has changed.
Focus has shifted from discussion about stalled health-care and cap-and-trade legislation to fundamental issues about the country's — and, for that matter, other countries' — longterm economic and financial stability. We have not had this discussion since the 1930s, when independent commissions' recommendations led to such measures as the Glass-Steagall Act, separating commercial from investment banking.
We probably should have begun the dialogue more seriously in 2009. Entering 2010, smaller banks continue to fail, small business can't get financing, public resentment is building about the greed and insensitivity of big-bank managers whose reckless risk-taking caused the present distress, and our domestic unemployment rate seems likely to remain at or near an official 10 percent through most of the year. A recent walk around Seattle neighborhoods revealed empty spaces and store fronts where thriving businesses existed only a year ago.
Let's start with the global issues. At the see-and-be-seen annual global economic conference at Davos, Switzerland, the tone this year was decidedly different than in others.
Jean-Claude Trichet, president of the European Central Bank, observed that the financial crisis had caused fundamental changes between banking and government. Taxpayer money, he pointed out, had rescued the financial system. French President Nicolas Sarkozy, in the meeting's keynote address, declared bankers' speculative behavior as "indecent behavior that will no longer be tolerated by public opinion of any country." One banker at the meetings remarked that big bankers now ranked with terrorists as objects of public scorn.
Here at home President Obama, accompanied by former Federal Reserve Chair Paul Volcker, announced last week that he saw the need for tougher financial regulation, including abandonment of the "too-big-to-fail" doctrine which, during the recent bailout, appeared to dictate that government would rescue a handful of huge financial institutions, whose failures would have wide repercussions, while abandoning smaller ones whose balance sheets might have been healthier. Volcker had been lobbying for such a policy through much of 2009 but had been rebuffed by Treasury Secretary Tim Geithner and White House economic czar Larry Summers.
During the same week Geithner was subjected to brutal congressional questioning regarding the financial bailout. Fed Chair Ben Bernanke, the real savior of the situation, was confirmed by the Senate for a fresh term as chair, but only by a 70-30 vote — sending a message of congressional unease with past policy.
Sunday's New York Times contained a long essay by Volcker which pursued further his thesis that too-big-to-fail concepts no longer should be pursued. He warned against complacency and a tendency to fall back on familiar but dangerous banking practices and, moreover, called for genuine structural change in the system. The same Times reviews a new book by Nobel Prize-winning economist Joe Stiglitz, now at Columbia University, in which he castigates Summers for his championing of financial deregulation in the Clinton administration, as also in this interview.
Obama, in his State of the Union speech, called for financial re-regulation. Senate Banking Chair Chris Dodd, serving his last year in the Senate, and House Banking Chair Barney Frank are revisiting the proposals in their committees for financial reform. They almost surely will be tightened. Several weeks ahead will be dominated by testimony and discussion of competing models of re-regulation. (Washington Sen. Maria Cantwell is sponsor, along with Sen. John McCain, of a proposal to reinstitute Glass-Steagall).
Meantime, in the country, populist unrest is building — and not just in the Tea Party movement. Standing in a bookstore line, over the weekend, a half-dozen waiting customers passed the time by swapping stories of first-hand abuses which all recently had suffered at the hands of big banks. My own story: Receipt of two CitiCard invoices over the past two months which contained several-hundred-dollar "finance charges" even though all invoices are paid in full on a current basis. A call to CitiCard, after the first invoice, resulted in a customer-service agent saying the finance charges were "a bank error" which promptly would be erased. When it happened a second time, it was necessary to fight through three layers of CitiCard executives before getting the undefined several-hundred-dollar finance charge again erased.
I found myself in full populist indignation when a CitiCard manager said the finance charges appeared on the invoice "because the card had been used during the month," even though full balances had been paid ahead of the due date. "You people are outrageous," I told him. "Citi blew our money and is now trying to take it however it can. I caught you doing what you did. What about those who do not review their invoices carefully? What about those on a direct-pay system where the money is directly extracted from their bank accounts? You must be getting millions from customers who do not see what you are doing."
It would not happen again, the Citi guy said. No, I thought, not to me and others who had spotted the practice but to the majority of customers who probably did not.
We truly have not had in recent years the kind of debate that was commonplace in the 1930s (and, again, briefly during the post-World War II period) about the nature of our financial and economic systems and how they can best serve us. In the 1930s, of course, communism and fascism were being offered as alternative models. Capitalism, as then practiced, seemed genuinely endangered. Now we are just beginning to come out of a wrenching financial/economic crisis largely brought on by the greed and stupidity of Wall Street meglomaniacs now denying that any change is necessary.
I am grateful that Volcker is back in influence. He is big man in all respects who will take no guff from such clowns. Public anger is entirely in order. It cannot be allowed to subside. May it continue, full blown, until Congress and White House pass real systemic reform later this year. Contra los luchas!
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