In April, President Obama delivered a speech in which he alluded to the Sermon on the Mount to describe the stronger, more just economy he envisioned: “We cannot rebuild this economy on the same pile of sand,” he said. “We must build our house upon a rock.”
But the regulatory reforms he laid out on Wednesday do not fully accord with those eloquent words. Indeed columnist Joe Nocera accurately describedPresident Obama’s new plan in the New York Times yesterday: “The Obama plan is little more than an attempt to stick some new regulatory fingers into a very leaky financial dam rather than rebuild the dam itself…. Everywhere you look in the plan, you see the same thing: additional regulation on the margin, but nothing that amounts to a true overhaul.”
Yet, at a time when we are living amid the blowback of an overgrown financial sector that did more harm than good, and we’ve seen the failure of a whole model of banking — the Administration has offered some useful reforms. Most promising is the creation of a Consumer Finance Protection Agency— the brainchild of Elizabeth Warren. But we don’t see the kind of real revamping that is sorely needed. What we really need now — as Obama himself indicated in April — is a new foundation for a new economy. That means ensuring — through tough regulatory reforms that Nocera pointed out would “make some bankers mad” — that we have a financial sector that is more responsive to the public interest and the real economy; that is a servant, not master, of the people.
That is why it’s so critical that a new national coalition of nearly 200 state and local organizations ranging from financial experts to community advocates announced its formation this week. Americans for Financial Reform is committed to working for reforms “that keep people in their homes and prompt smart investment in communities and businesses that create good jobs and strong neighborhoods.”
“For too long the big banks have been making their own rules and gambling with your money,” campaign director Heather Booth said. “We’ve come together today to tell them those days are over. The excesses of Wall Street have spilled over into our communities and now our communities are going to take on the fight for real financial reform.”
This coalition is impressive — far too many strong groups to name here — it is also timely and critical. At best, the prospects for meaningful reform are uncertain, as evident in Senator Dick Durbin’s recent descriptionof Congress: “The banks are the most powerful lobby on Capitol Hill…and frankly they own the place.”
Indeed too many banker fingerprints are on the Administration’s new plan as well. Rather than breaking up banks that place our economy at risk by being “too big to fail”, those institutions simply get a new name and promises of more regulation as “Tier 1 Financial Holding Companies”. (Contrast that with Senator Bernie Sanders’ refrain: “If you’re too big to fail, you’re too big to exist.”) Customized derivatives of the AIG variety — which wreaked such havoc all over the world — will still be permitted and will still be difficult to regulate.
Finally, too much power is centralized in the Federal Reserve despite its recent failures and coziness with the financial sector it is supposed to watch. As The Nation‘s John Nichols wrote, “The Fed is famously unaccountable and resistant to transparency…. What should be obvious to everyone is that Congress needs to get a grip on the Fed — which is structured in a manner so that it faces little or no congressional oversight — before it allows Obama’s proposal to advance.” (Note: Watch for William Greider’s major piece in our end of month issue on the dangers of entrusting the Fed with too much regulatory power.)
The banking lobbyists are already lining up to put the kibosh on the good Consumer Finance Protection Agency proposal with ridiculous proclamations of the exorbitant costs it will impose on consumers. With Congress setting a goal for a signed financial regulatory reform bill by the end of the year, the creation of Americans for Financial Reform comes none too soon. Even if the table is flawed — and the Obama Administration perhaps missed an opportunity to set it right — consumers and citizens need a seatthere nonetheless. Otherwise, it’s business as usual, and we know precisely where that leads.