Sen. Bernie Sanders' proposed bill ordering the secretary of the Treasury to submit to Congress a list of "Too Big to Fail" financial institutions and then to break up those institutions in short order is garnering a surprising amount of attention. Surprising, because first, sad to say, Sanders does not have the best track record in getting bills he has sponsored out of committee, much less signed into law, and second, the slender, two-page piece of legislation is remarkably slight on the details as to how the secretary would go about accomplishing this critical task.
At the Baseline Scenario, James Kwak is ebullient:
The bill says that Treasury can break up the institutions any way they want to, so long as the resulting entities do not individually threaten the financial system (and thereby our economic well-being). So opponents can throw out all those arguments about why separating commercial and investment banking is bad, or why banks have to be global (a bit of an embarrassment to Wells Fargo) -- now they need to argue that a well-functioning financial system must include institutions that could take down the financial system.
I don't think this is true. I don't think "opponents" are going to bother at all with a bill proposed by one of the Senate's most left-wing members. They're saving their fire for considerably more conservative proposals that are backed by the White House and might have an actual chance of passing. Sanders' bill works nicely as a populist thermometer for measuring rage against the Wall Street machine, but it is more an act of political theater than a step toward realizable policy.
But for what it's worth, here's where to go to sign Bernie Sanders' "Too big to fail is to big to exist" petition:
And here's the bill, in its entirety:
A BILL
To address the concept of "Too Big To Fail" with respect
to certain financial entities.1 Be it enacted by the Senate and House of Representa-
2 tives of the United States of America in Congress assembled,
3 SECTION 1. SHORT TITLE.
4 This Act may be cited as the "Too Big to Fail, Too
5 Big to Exist Act".
6 SEC. 2. REPORT TO CONGRESS ON INSTITUTIONS THAT
7 ARE TOO BIG TO FAIL.
8 Notwithstanding any other provision of law, not later
9 than 90 days after the date of enactment of this Act, the
10 Secretary of the Treasury shall submit to Congress a list2
1 of all commercial banks, investment banks, hedge funds,
2 and insurance companies that the Secretary believes are
3 too big to fail (in this Act referred to as the "Too Big
4 to Fail List").
5 SEC. 3. BREAKING-UP TOO BIG TO FAIL INSTITUTIONS.
6 Notwithstanding any other provision of law, begin-
7 ning 1 year after the date of enactment of this Act, the
8 Secretary of the Treasury shall break up entities included
9 on the Too Big To Fail List, so that their failure would
10 no longer cause a catastrophic effect on the United States
11 or global economy without a taxpayer bailout.
12 SEC. 4. DEFINITION.
13 For purposes of this Act, the term "Too Big to Fail"
14 means any entity that has grown so large that its failure
15 would have a catastrophic effect on the stability of either
16 the financial system or the United States economy without
17 substantial Government assistance.
Never mind President Obama's audacity of hope. It's the audacity of the banks that takes your breath away. Mean old Mr. Potter in "It's a Wonderful Life" seems like Father Christmas by comparison.
A recent report that Citigroup and Goldman Sachs may have received preferential treatment getting doses of the swine flu vaccine was enough to give Ebenezer Scrooge the yips. Then came news that in order for us to get back the taxpayer bailout money we loaned it, Citigroup is receiving billions of dollars in tax breaks from the IRS.
And there's a new study this week, "Rewarding Failure," from the public interest group Public Citizen, revealing that in the years leading up to the financial meltdown, the CEOs of the 10 Wall Street giants that either collapsed or got huge amounts of TARP money were paid an average of $28.9 million dollars a year.
In 2007, that amounted to 575 times the median income of an American family. Now, thanks in part to the banks' monumental malfeasance that led to our economic swan dive, food stamps are now being used to feed one in eight Americans and a quarter of all the kids in this country. A new poll from the New York Times and CBS News reports that more than half of our unemployed have borrowed money from friends and relatives and have cut back on medical treatments. The Times wrote, "Joblessness has wreaked financial and emotional havoc on the lives of many of those out of work ... causing major life changes, mental health issues and trouble maintaining even basic necessities."
Yet according to the nonprofit Americans for Financial Reform, the reported $150 billion that Wall Street is paying itself in compensation and bonuses this year would be enough to solve the budget crisis of every one of the 50 states or create millions of jobs or prevent all foreclosures for four years.
All of this wretched excess is occurring as more and more people can't afford a roof over their heads. Foreclosures were up another 5 percent in the third quarter -- 23 percent more than a year ago. Fewer Americans are willing to buy foreclosed properties, and the Obama administration's foreclosure prevention plan has been a bust so far -- way too timid, critics say, and many of the banks won't play ball, refusing to negotiate in good faith with homeowners desperate to hold on.
We got a firsthand look at the crisis this week when thousands lined up at the Jacob Javits Convention Center just a few blocks from our Manhattan offices to attend a mortgage assistance event sponsored by the nonprofit Neighborhood Assistance Corporation of America (NACA). So many showed up for this leg of the "Save the Dream Tour" that on many days, staff and volunteers stayed to help until 1 in the morning.
NACA has had success getting homeowners and banks together to work out a deal to prevent foreclosure. But the big banks' return to the government of the TARP bailout money with which we underwrote them over the last 14 months is a mixed blessing -- great to have the cash returned so quickly, terrible because any leverage Washington held over the banks because of the loans virtually vanishes with the payback. They're back in the saddle and not inclined to be of much assistance helping anyone else out, especially those in mortgage trouble.
As Andrew Ross Sorkin of the New York Times wrote in the wake of Obama's Monday meeting with Wall Street's top guns (three of whom failed to show up because of airport delays)
Executive compensation, leverage limits and lending standards were all issues that Washington said it planned to change -- and when the taxpayers were the shareholders of these firms, it probably could have done so. But now the White House has been left in the position of extending invitations, rather than exercising its clout. And in the figurative and literal sense, it is getting stood up.
Afterward, Obama said, "The problem is there's a big gap between what I'm hearing here in the White House and the activities of lobbyists on behalf of these institutions or associations of which they're a member up on Capitol Hill."
That's putting it mildly. This week, the American Bankers Association sent out an update and "call to action" memorandum crowing over its success in watering down the bank reform bill that was approved by the House and urging its members to beat back similar legislation in the Senate. Self-righteously, it concludes, "As one of your New Year's resolutions, please vow to do everything in your power to show, and to have your colleagues in your bank show, your Senators the right path to true reform."
It helps when the right path is paved with silver and gold. As "Crossing Wall Street," a November report from the Center for Responsive Politics, notes:
The finance, insurance and real estate sector has given $2.3 billion to candidates, leadership PACs and party committees since 1989, which eclipses every other sector ...
The financial sector has also been a voracious lobbying force, spending an unprecedented $3.8 billion since 1998, while sending an army of lobbyists to Capitol Hill to make its case. That's more money than any other sector has spent on influence peddling. Not even the healthcare sector, which spun up a lobbying frenzy this year over health reform, has spent more.
The banks are making a list and checking it twice. And we shouldn't forget that during his run for the White House, the finance sector filled Obama's stocking with $39.5 million worth of campaign contributions, more than for any other presidential candidate.
God bless us, every one!
Research support provided by "Bill Moyers Journal" producer William Brangham and associate producer Katia Maguire.
Here's hoping the Americans like going around in circles when it comes to our national debt. Because the New York Times article today by Mary Williams Walsh about the situation at Fannie Mae, Freddie Mac, AIG and GMAC promises a carnival ride from hell for the U.S. taxpayer.
Describing them as institutions "in need of continuing infusions that make them look increasingly like long-term wards of the state," Williams Walsh essentially reports that the institutions will be needing to borrow future monies to pay off their existing obligations to the government:
Like the big banks, these four companies would no doubt prefer to be free of government assistance, which comes with pay and other restrictions on their executives. But they appear at risk of getting onto a debt merry-go-round, where they have to draw new money from the government just to keep up with their existing government debts.
Fannie Mae recently warned, for example, that it could not pay the dividends it owes the Treasury, so “future dividend payments will be effectively funded with equity drawn from the Treasury.”
All told, the four have already drawn $600 billion combined and that figure could grow to $1 trillion. To put that figure into perspective, if unpaid it would be more than the 10-year cost of the healthcare plan. My word.
And how are they doing so far in honoring their obligations? Answer: mixed.
A spokeswoman for GMAC pointed out that the company had made all its scheduled dividend payments to the Treasury, as had Freddie Mac. While Fannie Mae has said it will have trouble paying its dividends, A.I.G. does not have to pay dividends.
A spokeswoman for A.I.G. said that the insurance company was committed to repaying taxpayers, but repayment would depend on market conditions. A Freddie Mac spokesman said that the company was dependent on continued support from the Treasury to stay solvent. A.I.G.’s latest request for money offers an example of why it needs more government aid to pay its debts.
Center on budget and Policy Priorities
There's been a lot of complaining about the president this week, myself included. But one thing he does not deserve blame for are the projected structural deficits over the next decade.
According to a new report issued by the Center for Budget and Policy Priorities, and based on figures from the Congressional Budget Office, the Bush43 tax cuts and the wars in Afghanistan and Iraq are responsible for a much bigger share of the annual deficit projections than TARP, the stimulus package and even effects of the economic downturn (i.e., lost treasury revenues) combined.
Yes, Tea Party Nation, you read that correctly: All of this big government socialism that has so frightened you is dwarfed by the deficit contributions of those tax cuts for the most wealthly Americans. But please, run out in the streets with your Obama/Joker signs defending those in Jay-Z's tax bracket. Now, more than ever, they need your help.
Sniping aside, look: You can hold Obama accountable for TARP, since he supported it, and of course the stimulus. Though he hasn't withdrawn fully from Iraq and is ramping up in Afghanistan, you can only proliferate or scale back something somebody else started, so even that is at best a push for GWBush. You could even argue that as we move forward the treasury losses of the downturn gradually become Obama's responsibility.
But the tax cuts? That's all on you, George. (Well, W, his fellow Republicans, and the Dems who voted with them.)
The report--the title of which actually says it all: President Obama Largely Inherited Today’s Huge Deficits: Economic Downturn, Financial Rescues, and Bush-Era Policies Drive the Numbers--summarizes its findings as follows:
The events and policies that have pushed deficits to astronomical levels in the near term, however, were largely outside the new Administration’s control. If not for the tax cuts enacted during the Presidency of George W. Bush that Congress did not pay for, the cost of the wars in Iraq and Afghanistan that began during that period, and the effects of the worst economic slump since the Great Depression (including the cost of steps necessary to combat it), we would not be facing these huge deficits in the near term.
While President Obama inherited a bad fiscal legacy, that does not diminish his responsibility to propose policies to address our fiscal imbalance and put the weight of his office behind them. Although policymakers should not tighten fiscal policy in the near term while the economy remains fragile, they and the nation at large must come to grips with the nation’s deficit problem. But we should all recognize how we got where we are today.
John McCain seems to be feeling a bit of buyer's remorse. In 1999, he voted for the Gramm-Leach-Bliley Act that repealed Glass-Steagall -- the 1933 law separating commercial and investment banking activities. His campaign chairman in 2000 was one of the bill's biggest proponents -- the arch-deregulator Phil Gramm. But now McCain wants a do-over. On Wednesday morning, he joined up with Washington Democrat, Sen. Maria Cantwell, to introduce a bill aimed at bringing Glass-Steagall back from the dead.
"I am pleased to be working with Senator Cantwell on this important issue. My reasons for joining this effort are simple -- I want to ensure that we never stick the American taxpayer with another $700 billion -- or even larger -- tab to bailout the financial industry," said Senator John McCain. "If big Wall Street institutions want to take part in risky transactions -- fine. But we should not allow them to do so with federally insured deposits. It is time to put a stop to the taxpayer financed excesses of Wall Street," McCain continued. "No single financial institution should be so big that its failure would bring ruin to our economy and destroy millions of American jobs. This country would be better served if we limit the activities of these financial institutions."
Suddenly, Glass-Steagall seems to have been a good idea after all!
Beginning in 1933, Glass-Steagall established a wall between commercial and investment banking to protect depositor money from being put at risk by Wall Street speculation. For nearly 60 years, this firewall maintained the integrity of the banking system; prevented self-dealing and other financial abuses; and limited stock market speculation. But since its repeal, banks have blended banking and brokerage, using loopholes in the Act and other statutes to market financial products like stocks, mutual funds and underwriting stocks to their consumers at the same time. When these megabanks default under the current system, taxpayers pay for the losses twice over.
Does Cantwell-McCain have a snowball's chance in hell? Both Republicans and Democrats claim to be opposed to "too big to fail" -- here would be one clear way to cut the biggest banks down a notch or two. JPMorgan, for example, would have to divest itself of Bear Stearns. Bank of America would have to disgorge Merrill Lynch. Citigroup would shatter.
But considering how little appetite Congress seems to have for much milder regulatory fare, and how hard the banks would fight any such move, I'd be shocked to see Cantwell-McCain gain any real momentum. Not a single Republican in the House voted for regulatory reform last Friday, and Senate Republicans have hardly demonstrated their own zeal for fundamental change on Wall Street. Congratulations to McCain for realizing the error of his ways, but until we hear the likes of Jim DeMint calling for the return of Glass-Steagal, while standing shoulder to shoulder with Bernie Sanders, let's not get too excited.
See if you can guess who opened his/her commentary piece today with these four paragraphs, and for which outlet:
From Fat Cats To Pussycats
Obama's Wall Street power failure reveals the root of his problems.
President Obama's much-hyped powwow with the nation's top bankers at the White House Monday proved more lay-down than showdown. It produced no meaningful, concrete concessions from Wall Street on financial reform and business lending, but it did yield a heck of a lot of clarity about who is calling the shots on the economy--the president's unconvincing chest-beating notwithstanding. More important, it illustrated in the clearest terms yet why Obama is steadily losing the public's confidence--and why his presidency will have trouble recovering if he does not change his leadership style.
That style might be described as the Reverse Roosevelt: Talk boldly and carry a toothpick. The president has created great expectations with his lofty rhetoric and ambitious agenda (much of which I support). But he has developed a troubling habit of acting small in support of his big thinking. Sometimes that means showing too much deference to the dysfunctional deans of Capitol Hill (health care, stimulus). Sometimes, as I pointed out last week, it means too much intellectual and political timidity (jobs, spending, financial reform). And sometimes it means too much hesitation to take on a fight, crack a few heads and instill some fear (take your pick).
The common element is a power failure--a failure to understand or exercise the unique and extensive powers of the presidency. To be fair, this is a common problem for new White House inhabitants. It certainly plagued Bill Clinton; he got rolled left and right by Congress in his first two years (remember the ill-fated BTU tax?). But Obama's growing record of reluctance to take policy stands befitting the economic crisis, to issue veto threats or to generally show his opponents who's boss suggests that he is suffering from something more problematic than freshman ignorance.
In that regard, Monday's box-checking photo-op with the banking bigwigs was the pièce de non-résistance. There's no political constituency in the country more despised or vulnerable at the moment than Wall Street, which is thanking taxpayers for saving their skin by slowing the recovery and blocking reform legislation in Congress. If there were ever a good time and safe space to put the bully in the bully pulpit, this was it. But one day after calling the fat cats out on national television, the president, by most accounts, treated them like pussycats behind closed doors....
So, is it?
(a) Harold Meyerson, for the Washington Post.
(b) Katrina van den Heuvel, for the Nation.
(c) Matt Taibbi, for RollingStone.com.
(d) Dan Gerstein, for Forbes.com.
(e) Byron York, for the Washington Examiner.
Make your best, honest guess before clicking or even rolling over the link to the actual author and outlet, which you can find here.
At The Big Picture, Tim Iacano provides an eye-popping chart detailing the stock holdings of Goldman Sach's top executives. The important thing to note is that the numbers reflect what the executives already own right now irrespective of whether they get their 2009 bonuses paid in cash this year, or doled out to them as "restricted" stock that they won't be able to sell for as long as five years.
Lloyd Blankfein, CEO and Chairman of the Board, owns 1,685,932 shares of Goldman, worth $274,393,733.
Gregory Palm, Executive VP, owns 939,742 shares, worth $152,943,011.
John Weinberg, Vice Chairman, owns 910,324 shares, worth $148,155,231.
David Viniar, Chief Financial Officers, owns 794,902, worth $129,370,301.
J. Michael Evans, Vice Chairman, owns 644,953, worth $104,966,101.
And so on.
Now we know why Blankfein was so miffed at Obama's "fat cats" comment that he couldn't manage to physically attend the Monday morning pow-wow in Washington. He's not a fat cat. He's a Godzilla-sized Sabertooth Tiger Monster. Get it straight, Mr. President.
We own the banks. Now what do we do with them?
As the majority shareholders in failing banks, the American public should push management to cut executive compensation and make more loans to Main Street.
By Robert Reich, Salon
Who caused the economic crisis?
Economist Simon Johnson and "Obamanomics" author John Talbott say there's plenty of blame to go around.
By Simon Johnson and John Talbott, Salon
Does Obama's plan for Wall Street measure up?
Take a wild guess.
By Robert Reich, Salon
The $1 trillion game of chicken
Getting to the bottom of the government stress tests.
By Andrew Leonard, Salon
NPR's Planet Money podcast
A cogent, entertaining way to keep up with the increasingly complex financial crisis.
NPR
Bailout blues: why bank nationalization makes sense
Maybe nationalization is not such an incendiary notion after all.
By Ruth Conniff, The Progressive
The quiet coup
Recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.
By Simon Johnson, The Atlantic
Bernanke's Boffo Week
Worlds Apart
