Let’s just assume for the sake of argument–though I believe the claim to have been completely bogus–that the Federal Reserve and the US Treasury and all of the Bush and Obama economic advisers and Congressional leaders in late 2008 and early 2009 genuinely feared that shutting down and breaking up the nation’s biggest banks would lead to financial and economic disaster because of the extent of the fiscal crisis caused by the implosion of subprime-linked structured products.
We now know, thanks to an amendment to the Dodd-Frank financial “reform” law introduced by Sen. Bernie Sanders (I-VT), that the Fed made available a stunning $3.3 trillion in emergency lending, at extraordinarily low interest rates ranging as low as 0.5%.
But this information was withheld from both Congress and the public by the Fed and the Treasury until this past week! There was no legal reason for it to be withheld. It was our money, and in an excellent article by Gretchen Morgenson of the New York Times, Walker F. Todd, a former assistant general counsel and research officer at the Federal Reserve Bank of Cleveland who now works as a research fellow at the American Institute for Economic Research, says the information about the amount of the emergency lending, and who was receiving the money should have been made available long before the Dodd-Frank legislation was drawn up.
As Todd tells Morgenson, “The Fed’s current set of powers and the shape of the Dodd-Frank bill over all might have looked quite different if this information had been made public during the debate on the bill.”
Boy is that an understatement.
Dodd-Frank was written within the constraints–huge and debilitating–of the concept of “too big to fail.” There was absolutely no consideration given during the drawing up of the bill to hacking apart Citibank, Bank of America, Wells Fargo, JPMorganChase or Goldman Sachs. Nor was any consideration given to requiring these big banks, which are responsible collectively for more than half of all foreclosures nationwide, and which have the huge majority of credit cards, on which Americans are struggling with long-term balances carrying loan-shark rates in excess of 20%, to cut their customers some slack.
If the American public had known a year and a half ago that the same banks that were turning the screws on them were receiving $3.3 trillion in subsidized loans, there would have been a massive clamor to demand that as a condition of those loans, deals be cut to reduce mortgages to accurately reflect the depreciated value of the homes in question, and to reduce the monthly payments people owed. There would have been a clamor to restrict the interest rate that banks could charge on card balances. Questions would have been asked about why these banks, that clearly couldn’t survive on their own without taxpayer support, were being allowed not only to continue to exist, but to actually get larger.
So then, we come to the question, which isn’t asked in Morgenson’s otherwise typically magnificent article: Why, now that the financial crisis of the banks has been quieted down, and the freefall of the economy has been halted, aren’t we breaking up the banks, finally?
There can no longer be any fear expressed that breaking up these overlarge behemoths will hurt the economy. More competition in banking would only be advantageous to those who are seeking loans. The big banks aren’t even lending, at least domestically. They make more money by sticking their cheap federal money into Treasuries and collecting the interest.
And all we do by continuing to say these institutions are “too big to fail,” is encourage them to return to the casino style of investing in derivatives that led to the latest crisis, ensuring that we will be treated to another financial meltdown before too long, and another bailout by the taxpayers.
And by the way, nobody’s talking about another problem: Bernanke and the Fed can lower interest rates all they want with their so-called quantitative easing–that is by using Fed-printed money to buy Treasury bills–but as long as banking is combined into one corporate entity along with investment banking, why on earth would that combined entity lend money to any person or corporation, especially when rates are low, if it can make lots more money by investing in derivatives? The best and perhaps only way to encourage banks to lend, then, is to sever that link and make the banks fend for themselves, the way it was before the Clinton administration and Congress eliminated the 1932 Glass-Steagall Act. That way, the only way for a bank to make a buck is to lend its money out.
Now that we know that these big banks only continue to exist today because of the extraordinary provision of virtually free money to the tune of $3.3 trillion dollars, why on earth are we not demanding, and why isn’t Congress immediately passing legislation, to strip these huge financial institutions of their investment banking arms, and break up the remaining banking sides into smaller, more manageable, institutions?
Institutions that can fail without bringing down the whole US financial system and economy with them.
The answer is threefold:
* Congress is so corrupted by political contributions from these same huge financial institutions that few members of House or Senate are free to do the right thing. The public humiliation of Rep. Charles Rangel (D-NY), the former chair of the House Ways and Means Committee, on charges of corruption because he failed to disclose income on property in the Dominican Republic, and because he drummed up donations for a college in New York that was naming a school after him, pale to insignificance in comparison to the colossal corruption of most of those in the House who stood in condemnation of him. Most of them are huge recipients of banking industry largesse.
* The public is ill-informed about this scandal. Embarrassingly few news organizations have reported clearly and accurately about what has been going on, and even the New York Times puts the trenchant and easy-to-follow reporting by its ace banking industry reporter Morgenson on its business pages, instead of the front page, where it belongs.
* The American people are politically passive and easily diverted. Well-funded right-wing groups steer voter fear and outrage against bogus targets like immigrants, federal employees, WikiLeaks, the gay rights movement or some other issue, while the big issue of financial institutions running the nation’s economy into the ground get ignored.
What is needed is a concerted focus by progressive forces on the left on a call to restore sanity in banking, by reimposing a wall between banking and investment banking, setting a maximum size on any bank, restoring the old bankruptcy laws so that everyone can get a fresh start and get out from under an unmanageable debt burden, (without losing their home), and placing reasonable usury limits on any lending, including credit cards.
At the same time, we need to put an end to the buying of politicians. This will require a new sophistication among voters, who should learn to automatically reject any politician who accepts large amounts of cash from corporations or fake “public interest” organizations. For starters, we should demand that no company that receives any federal grant or loan be allowed to lobby Congress or the president, or donate to political campaigns.