William Greider | The Nation
Still No End to 'Too Big to Fail'
When Congress passed the Dodd-Frank financial reform bill in the summer of 2010, the Obama administration made happy talk about putting an end to “too big to fail” banks. Hold the champagne. The Federal Reserve Board has just created the fifth-largest bank in the country, despite a flood of warnings from community advocates and smaller banks.
Skeptics in financial markets are entitled to their skepticism. Capital One has been rapidly assembling this new behemoth, acquiring local deposits and credit card operations in a series of mergers. Federal Reserve governors reviewed the complaints and rejected them. In banking regulation, the “new normal” so far looks a lot like the “old normal.”
Of course, it is impossible to say this marks an end to reform. But it’s a real downer for the reform advocates. They have pleaded for a different perspective from the Fed regulators—weighing the “public benefits” of bank consolidations against the “adverse effects,” as Dodd-Frank requires. But the Fed made this calculation on very narrow grounds.The governors concluded that one more very large bank will not by itself bring down the system. True enough. But each decision the Fed makes now on applying the new rules sets a precedent for its future decisions. How big is too big? The Capital One decision seems to say size is not an issue.
'Technical Fix' for Social Security Will Shrink Benefits to the Poor
The newspapers say the Congressional supercommittee is stalemated on how to reduce the federal deficits, but Democrats and Republicans already agree on one thing. Both parties want to whack Social Security, hoping the old folks won’t notice. Some policy wonks have shown the politicians a sly way to shrink Social Security benefits and call it a “technical fix.” By changing the formula for calculating the annual cost-of-living increases that beneficiaries normally receive, small differences add up to big pain for old folks. The same adjusted formula would be applied to disability benefits and military and veteran pensions.
The beauty of this gimmick is that it looks trivial at first and most people probably wouldn’t notice. But the impact compounds every year afterwards. The personal loss gets larger and larger the longer retired people live on. The Congressional Budget Office calculates savings for government of $217 billion over ten years, barely a scratch in a federal budget of $13 trillion.
But the ugly part of this gimmick is that it punishes most severely the very people who most need help—the lame and the halt and the poor. In the austerity hysteria that grips Washington, that has been a standard approach to deciding who accept sacrifices. If someone must lose, the poor are an easy target—a lot easier than raising taxes on the affluent and super-rich or whacking away at the bloat and waste at the Pentagon.
Smearing Social Security
The Washington Post published a sensational story last Sunday that claimed that Social Security is already broke. “Adding billions to US budget woes,” the headline read. Instead of piling up surpluses, as the Social Security trust fund has done for nearly thirty years, this year the system became “cash negative.” Social Security, the Post warned, “is sucking money out of the Treasury.”
This is alarming news, if true. Fortunately, it is not true. The Post committed what I call fact-filled mendacity—a pejorative mash of scary buzz words and opaque statistics that encourages readers to reach false conclusions. The newspaper’s obvious objective is goosing the so-called supercommittee whose Congressional members seem to be reluctant about whacking Social Security benefits. The formerly liberal Washington Post has long urged that as a solution to federal debt and deficits. Its ideological posture influences its reporting and also what “informed observers” think. Last night, I heard a TV anchor remark in passing, “We just read that Social Security is in the red.”
Baloney. The truth—if truth is still relevant to Washington politics—is that Social Security has never contributed a dime to the federal budget deficits. Therefore, cutting Social Security for the elderly will do nothing to relieve the deficit problem. Senate majority leader Harry Reid has made this point, so has President Obama. Not true, the Post story flatly declares.
Debt Forgiveness, Euro-Style
At the midnight hour, when financial-market wise guys were predicting disaster, Europe’s political leaders proved to be stronger and braver than America’s. The big nations of the EU worked out a deal to resolve their financial crisis that does what US politicians, including the president, lack the nerve to pursue. The Europeans are whacking the bankers big-time.
Yes, the sovereign governments of Europe have to put up more billions to rescue debt-soaked smaller nations like Greece. But the bankers who lent all that money will be compelled to share in the pain—a 50 percent write-down on the sovereign-nation bonds they are holding. Ouch.
This may be the beginning of wisdom—forgiving debts that in any case will never be repaid. That giant step should give Europe a clean start for economic recovery. It’s a much smarter alternative than imposing perpetual austerity on people who are already broke.
Why DO They Occupy Wall Street?
The reporters and pundits have been surprisingly respectful, withholding the usual cynicism. They did not jeer and make weak jokes. Still, they couldn’t resist pointing out the incoherence of this motley crew “occupying” Wall Street. What is the agenda? They asked around and duly reported that no one seemed to know. Yes, this is a charming scene, the artists and hippie types gathered in the public square, but still it must be said: they have no agenda!
Let me help the brothers and sisters of the fourth estate. It’s humanity, stupid! That is agenda enough and it is expressed clearly (even existentially) by the gaudy, loving presence of these noble citizens who have seized Liberty Park as their own free space, just up the street from the New York Stock Exchange.
Correction: Liberty Park is now Zuccotti Park, which the real estate developer who bought the land renamed after himself. Doesn’t that pretty much say it? The egotism of capital has obliterated the softer values and virtues of labor and everyone else—anything that got in the way of the engine of modern capitalism. It is not just the millions of innocents who have been trampled by the profit-harvesting machine. The Wall Street guys and their lackey economists even captured the political culture and corrupted its meaning.
Fed-Bashing Follies
In olden days, when the Democratic Party was liberal and populist, it was the Dems who bashed the Federal Reserve. When the Fed pushed up interest rates to drive the economy into recession, Democrats would tell the central bankers: get off the backs of the working people. Now it is the Republicans complaining, the party of money. The GOP leaders demand that the Fed do—what?—do nothing. Nothing at all to help the wounded economy.
It sounds dumb, except Republicans are figuring folks won’t figure out their real purpose (shivving Barack Obama). They assume attacking the Fed is cost-free in our deranged politics, and they are probably right. Who wants to stand up for the mysterious agency that dispensed those many trillions to distressed megabanks with no strings attached? On the far, far right, there are adherents to dark theories that the Fed was created by the Rothschilds and is owned by the Gnomes of Zurich.
Democrats turned respectable and have nothing to say to the monetary policy-makers besides urging them to do the right thing, whatever that is. The party has lost its sense of direction on so many important issues—we rely on Senator Bernie Sanders, the socialist, to stand up for truth and justice.
Obama Backs Off Social Security, Medicare Reform
The word is out in Washington. When the president announces his deficit-reduction proposals next week, he will definitely not suggest any hit on Social Security nor any increase in the eligibility age for Medicare. That’s a small victory for reason and social equity. We can thank the voters of Brooklyn’s 9th Congressional District who this week elected a Republican representative for the first time in nearly ninety years.
The White House spin claims this off defeat has nothing to do with Barack Obama, but that’s tripe. Working politicians know better. The Brooklyn special election was an ominous rebuke to the president, suggesting he may be heading into Jimmy Carter territory. Despite official denials, Obama may be getting the message. At least the White House leakers were busy spreading the word to major media that Obama has dropped any intention of of whacking Social Security or Medicare eligibility in order to entice Republicans into some sort of grand compromise.
Congressional Democrats have felt a stabbing pain in the back whenever the president talked about “entitlement reform.” The Dems hope to run against the Republicans next year on those very issues—defending the great liberal social programs against cut-throat Republicans. Obama was threatening to throw away their best cards. They don’t have many others, given the stalled economy, flirting with recession. The president’s new job-creating plan is thin gruel. Even if Republicans allowed the legislation to pass (which they won’t), it won’t do much to stop the bleeding. Most Democrats pretend to be thrilled anyway. Privately, they have a scary, sinking feeling.
Why Is Obama Dragging His Heels on Appointing Elizabeth Warren to Head CFPB?
Elizabeth Warren’s problem is not with the Republicans—though they have worked hard to demonize her. Her real problem is with the “boys” at the Treasury Department and Timothy Geithner, the head “boy” in charge of the president’s banking policies. Maybe she also has a problem with the “boys” at the White House. We are soon to find out. In the next month or so, Barack Obama must decide whether or not he will appoint Warren to chair the new Consumer Financial Protection Bureau.
This ought to be a slam-dunk for him. After all, Elizabeth Warren invented the idea of a new regulatory agency to protect hapless consumers from predatory bankers. Obama embraced the concept as his own and it is one of his few distinctively original accomplishments. Warren knows consumer fraud. For many years, as a savvy reform critic, she courageously called out the banking industry on its most notorious practices. Her dynamic and plainspoken advocacy was essential in getting Congress to include the proposal in the financial reform legislation enacted last summer.
Yet Obama hesitated. For nearly a year, he has played coy and held off naming her to the job. We presumed that was because Republicans vowed to block her nomination unless the law is altered to weaken the CFPB and appease angry bankers. But that explanation doesn’t add up. Obama could always put her in the office through a recess appointment that gets around Senate confirmation. Yet he didn’t do so. What’s up with that?
Obama's Missed Moment
My bottom line on Friday's debate: Barack Obama failed to step up to the historic moment. He made perfunctory remarks about the massive banking bailout facing the political system, but he decided not to speak to the American people with anything resembling forceful honesty and clarity. McCain wasn't any better. Both men faced a gut check in their campaign and both of them flinched.
The explanation, I suspect, is that Barack Obama and John McCain know they are going to wind up voting for this outrageous package, probably sometime next week, so why pretend to be thinking independently? McCain had flirted with the idea that he could speak for the public's anger and reap big benefits for his troubled candidacy. Someone advised him not to go down that road. He folded.
Obama has offered critical comments on how the bailout should be redesigned for greater equity, but it seems clear he won't press the point. Left-labor groups are pushing Democrats to address the burdens of indebted Americans and the swooning economy with substantive measures. But party leaders are resisting - reluctant to slow down the bankers' bonanza with complicating issues.
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