What happened to the global economy and what we can do about it
with 55 comments
By Simon Johnson, co-author of 13 Bankers: The Wall Street Takeover and The Next Financial Meltdown. This post also appears on pbs.org/needtoknow – as part of that new TV program’s coverage of the week’s issues.
There is widespread agreement that the financial crisis which broke out in September 2008 was our most severe in over 50 years. There is also a consensus that, whatever other factors may have been involved, the excessive risk-taking and general mismanagement of huge banks at the center of our economy played a significant role in what happened. (Yes, of course the largest banks themselves deny any responsibility "“ including most recently using insulting language.)
The financial reform package now on the Senate floor puts surprisingly little constraint on the activities of our largest banks going forward "“ preferring instead to defer to regulators to tweak the rules down the road (despite the fact that this approach has gone badly over the past 20-30 years).
A growing number of senators insist we should do more to reduce the size and limit the leverage of megabanks (i.e., the amount that banks can borrow), arguing that this would constitute an important additional failsafe "“ on top of all other efforts to establish "more effective regulation".
Senator Ted Kaufman (D, DE) has led the charge on this issue, pounding away for months "“ and giving another powerful speech on the floor of the Senate yesterday.
Yet, astonishingly, it seems increasingly likely there will be no real Senate debate on this issue.
A real debate, in the modern American system, needs a vote on something specific – in this case, an amendment to the main legislation. And Senator Kaufman, with Senator Sherrod Brown (D, OH), to that end has proposed the SAFE Banking Act "“ with meaningful size and leverage caps "“ which is ideally suited as a way for senators to show whether or not they support the continued existence of our largest banks in their current (very dangerous) form.
Kaufman has directly taken on and rebutted all the arguments put forward by proponents of big banks "“ such as Larry Summers of the White House and Hal Scott of Harvard Law School. Kaufman has the facts and most sensible opinion on his side, including the literature summarized in our book (13 Bankers, which he cited yesterday), and other voices (also quoted in his speech yesterday):
With such strong arguments and powerful evidence on its side, you might think that the completely reasonable and responsible proposals in the SAFE Banking Act would get a vote. But you would be wrong.
The Senate leadership "“ on both sides of the aisle – has apparently decided that they do not want to give senators (and the public) the opportunity to focus their attention on this key issue. Instead, they would prefer to keep the "debate", in terms of votes, on issues less likely to infuriate powerful banks.
Our democracy allows great freedom of discussion – and it is encouraging that someone as prominent as Senator Kaufman can take on (and trounce) the biggest banks on the merits of the case.
But how much is this freedom worth if the political power of the megabanks – based on campaign contributions, lobbying efforts, and more general ideological control - can effectively prevent an up-or-down vote in the US Senate on the most pressing issue of financial reform?
This is, of course, partly about the political power of corporations. But corporations are, in this sense, merely a veil – this is really all about which people have what kind of power in our society. To what extent are we really still a democracy – and how far have we already slipped down the road to oligarchy?
Written by Simon Johnson
May 4, 2010 at 5:54 am
Posted in Commentary
Financial influence of our lawmakers will continue to be our greatest threat. We need public financing of campaigns in order to assure a democracy and legislation written by the American people and for the American people. Resistant groups are organizing and coming together. The revolution will be completed at the voting booth. When the subject has refused allegience, and the officer has resigned his office, then the revolution is accomplished. Henry David Thoreau
M L
May 4, 2010 at 7:04 am
This situation will continue until we implement: - Term limits for elected officials: 6 years for Congress, 12 years for Senate - Only allow federal campaign donations from American citizens with a max of $5000 per person per election year per candidate; corporations and groups are specifically excluded from donating - All gifts worth more than $25 must be refused by elected officials - Prohibit candidates from announcing candidacy before January 1 of the election year
saucymugwump
May 4, 2010 at 7:35 am
Great idea.
George
May 4, 2010 at 7:36 am
Add any former member of Congress/and or staff cannot become a lobbyist for 5 years.
1 Kings
May 4, 2010 at 7:46 am
Yes. This is fundamentally a political problem. But concentrated economic power will always find a way to influence politicians so we need to limit bank size as well.
Make banking boring don’t allow bankers to risk our money and hold the economy hostage
Restore government integrity don’t allow industry to co-opt our representatives
Jackrabbit
May 4, 2010 at 8:52 am
I agree. It might be as simple as reverting back to 1980 laws governing banks and Wall Street. And add a $100 billion cap on commercial bank size.
saucymugwump
May 4, 2010 at 11:13 am
Saucy, 1980 is pretty far back. I think Glass-Steagall was repealed in 1998. Anyway, its unlikely that we “go back” to laws of any early point in time. We just need to just enact the right reforms.
Also, any fixed cap is problematical. A percentage of GDP (as suggested by Simon) is much more workable.
Jackrabbit
May 4, 2010 at 2:21 pm
A few additions you could think about: -Limiting how many years a lobbyist can work on the hill to 2 years, with a minimum 12 year gap between 2 year terms. We don’t want lobbyists having more experience than the lawmakers. -PAC’s must disclose all contributors, and must have a link listing all of those contributors in all advertisements. If we require such things for a ballot initiative, which influences laws, same should go for commercials and ads, which also can directly affect laws and initiatives.
Agoraphobic Kleptomaniac
May 4, 2010 at 10:37 am
Term limits make the problem worse.
Term limits, as we’ve seen in all states that have adopted them, have made capture of legislatures by industry lobbyists easier rather than harder. They encourage a revolving door between industry and the legislatures and make it impossible to have career legislators who advocate for the good of the public.
Croak!
The Raven
May 4, 2010 at 1:00 pm
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