The Trouble With Democrats

Find out more about A New Way Forward and its grassroots efforts to reform our financial system here. William Greider's new book is Come Home, America.

The governing party faced an awkward dilemma. People were hurting and furious at the government's generous bailouts for banks. But how could the Democrats do something for the folks without upsetting their friends and patrons in the banking industry? Democrats think they found a way. They are enacting a series of measures described as "breakthrough" reform and "unprecedented" defeat for the bankers. Only these achievements are more accurately understood as "reform lite." The house is on fire and Democrats brought a garden hose.

The Democratic Party is changing in some promising ways, but what's impressive is how much it has not changed. Does that sound harsh? I am relying on private judgments from Washington players regarded as the "white hats" on this subject--consumer lobbyists and other public-interest reformers, who for years have labored in frustration to enact laws that would restore equity and honest relationships to the out-of-control financial system. These organizations mostly endorse the Democrats' efforts and celebrate their "victories." But a few minutes of private conversation reveals their doubt and disappointment. "It's a good bill," they will say, then after enumerating the shortcomings add, "It's better than nothing."

"This has to be on background, OK?" one of the reformers said. "This crisis brought down the world economy and yet Congress still hasn't passed a bill making sure it doesn't happen again."

Julia Gordon, a lawyer with the Center for Responsible Lending, did not seek anonymity. "We have reached the moment to ask ourselves Rabbi Hillel's question: if not now, when?" Gordon said. "I fear we are letting this crucial moment pass without putting forward-looking rules in place to fundamentally change how mortgages are made and prevent predatory lending. Plus, when we look back at the foreclosure tsunami that devastated so many families, we're going to be ashamed that we did not fix the bankruptcy code to permit mortgage modification. That move alone could have prevented more than a million foreclosures, and while I predict we will revisit the issue in the future, it will be like closing the barn door after the horse has died."

If not now, when? That question ought to haunt the Democratic Party and President Obama, who has been missing in action himself on key issues. Congressional Democrats are responding to this epic conflagration with the same risk-avoidance tactics they learned during many years in minority status. In those days, they could always blame right-wing Republicans for blocking their good intentions. But whom do the Dems blame now that they have the White House and fifty-nine votes in the Senate and a seventy-eight-seat majority in the House? Their standard explanation for not doing more is, "We didn't have the votes." So when might we expect Democrats to achieve more? When they have eighty votes in the Senate?

The party's ideological intentions are being defined with greater clarity in these new circumstances, and so are the president's. It's still early, but the implications are ominous for other issues. If Democrats are reluctant to disturb the power of other major interests, it seems improbable that fundamental change will occur on healthcare, energy conversion or the restoration of work and wages. The problem now is the Democrats, not the Republicans. The party aids and protects its free-roaming entrepreneurial politicians and does not punish those who undermine the party's larger promises. When Republicans were in charge, they enforced party loyalty with Stalinist discipline. Democrats are the party of safe incumbents, weak convictions.

The much-celebrated "Credit Cardholders' Bill of Rights" is a fresh example of how the Democratic Party tries to have it both ways--avoiding the tough votes while mollifying the folks. The credit card reform measure imposes new rules on the industry and does away with many of the most outrageous gimmicks bankers use to extract more money from debtors. Banks cannot raise interest rates retroactively on old credit card balances or pile on hidden fees or fail to give advance notice for rate increases. These and other changes are worthy.

The achievement seems less courageous if you know that Congress was largely ratifying the regulatory rules already adopted by the Federal Reserve last year. Or that the legislation gives the industry another nine months to gouge their customers before the new rules go into effect. Or that Visa and MasterCard, Citigroup and JPMorgan Chase are free to raise future interest rates to the sky--without limit. That is the industry's intention, as bank lobbyists reported after the bill was passed.

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