By Simon Johnson, co-author of 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown
When you strip away the disinformation, false promises, and wishful thinking, this is where we are on really reigning in the power of the country’s largest – and most dangerous – banks.
Senators Sherrod Brown and Ted Kaufman have proposed the SAFE Banking Act, which is an entirely reasonable and responsible way of limiting the size of our largest banks. It should be adopted as an amendment to the main financial reform bill now before the Senate.
As the New York Times points out today, there is growing support for this approach. But note that this article – while entirely accurate – was relegated to page B3; Sewell Chan’s original piece on this topic was a front page story on April 20.
The opposition to Brown-Kaufman at the highest levels of government (legislature and executive branches) is so strong that it is increasingly unlikely the amendment will even get an up-or-down vote on the Senate floor.
The NYT’s editorial page has endorsed Brown-Kaufman, as have a growing number of organizations that want to see some meaningful financial reform.
But opposition to Brown-Kaufman (and actually any real reform) is deeply entrenched among prominent senators and even the White House. They fall back on increasingly specious arguments, completely unencumbered by the evidence or any real head-to-head debate.
These people may well be soon forgotten – or even as widely disparaged in a few years as the once-ascendant Robert Rubin and Alan Greenspan are today. But for the moment their power on Capitol Hill is almost unbreakable.
This is not about ideology any more – it is hard to find anyone who will argue in public that finance is always good, unfettered finance is better, and largely unregulated big banks are the best. This is a major and encouraging break from the history of the past 30 years – as told, for example, in 13 Bankers.
The revolving door between Washington and Wall Street is also playing less of a role than in the past (again, we review the recent decades of evidence in 13 Bankers). To be sure, there are still plenty of lobbyists with Capitol Hill experience, but it is no longer fashionable for a top senator or treasury official to go easy on big banks and then slip into a comfortable boardroom for well-remunerated slumber (talk to Robert Rubin or Phil Gramm). We may see some of this, of course, but any such individuals will be pilloried indefinitely and without mercy; their names will live in serious infamy.
The lack of debate over Brown-Kaufman – and its likely demise – is all about money. There is a tsunami of contributions from the financial sector washing over Congress right now. When the dust settles, the pattern will be clear: Wall Street (legally) bought off key senators.
There will be a reckoning, to be sure, at the polls. The supporters of big banks will go down hard in November and in 2012; there are no secrets over this kind of time frame. But by then it will be too late for this cycle of financial reform – and there is on guarantee that the backlash will bring stronger reformers to power (in fact, the White House and the biggest banks would be quite happy to see non-reformers prevail.)
Call your senator, by all means, and urge support for Brown-Kaufman – or at least press them to allow a Senate floor vote on the issue.
Recognizing the paramount importance of money at this moment, you might also offer to send a $2 bill to every senator who votes for Brown-Kaufman.
If you haven’t seen the $2 in a while, stop by the bank and get one. Even if there is never anyone to whom it is worth sending, you can always pin it up in your kitchen as a reminder of what went wrong. It will be up to you which side to look at more often: Thomas Jefferson, who argued so powerfully against the dangers of a financial aristocracy (see chapter 1 of 13 Bankers); or the signing of the Declaration of Independence.
Update: Tiffiniy Cheng has a “whip count” and suggestions regarding how to sharpen everyone’s focus on key senators