10 Steps to Disastrous Financial Reform We Can't Allow the Government to Take

The economic crisis was not the result of just a “moral hazard”  problem. Many economists agree there was a culture and a system to the reckless behavior. President Obama and Congress vow to address the economic crisis in the coming months.



Financial sector reform is a chance for us to think about how we can reshape our financial system to benefit the overall economy rather than the individual large banks we have been serving for the past 30 years. On the side of the public, there are 10 upcoming Decisions to fear -- together they can kill our hope to de-emphasize singular corporate interests in policy making. 


If all 10 Decisions happen, the largest banks will be even mightier and our economy will work for single institutions at the top of the pyramid rather than the pyramid as a whole. The public will be lost for a good 10-20 years, having ceded much of any power to fight for our own interest. We've lost just one of the ten so far, 9 more are yet Undecided.


Our goal in an economic recovery should be to make happen the kind of bank reform that will really give us freedom to live with economic security and opportunity for all, equal access to financial products and the financial market without corporate hegemony, corruption and unstable giant corporations. The kind of bank reform we need will actually uproot the way banks have come to dominate our rationale and subsequent policies.


Decision #1 Congress expands the Fed's powers

The current seat of power, the Federal Reserve watches over the banks and the economy, but has recently failed to protect taxpayers.  The Fed worked with the banks to inflate bubbles and co-founded the biggest crash since the Great Depression.  Central to Obama's proposal for reform is to expand the powers of the Fed by making them the "supercop" for system-wide risk in the economy. The Fed does not deserve these new powers - we shouldn't reward their failure, prop up these avenues of corruption, and sanctify endless taxpayer-funded bailouts. If we officially designate the Fed as the SSR, we'll give the banks ultimate abilities to write their own rules. In addition, the Fed is allowed to operate in secrecy and in the past year has guaranteed loans in the trillions without any public approval. If the Fed is not audited, it will continue to have too much power as a taxpayer-funded agency to operate as they wish with no accountability to the public.


Status: Undecided


Decision #2 Investigations Become a Smokescreen

Congress has set up a Financial Crisis Inquiry Commission and has chosen its 10 members. The best hope for the commission is that wrongdoers of the crisis will be exposed and justice served; the worst scenario is the commission does nothing in order to protect the largest banks. We must police these investigators and support the most aggressive seekers of truth. Phil Angelides, Brooksley Born and Byron Georgiou are expected to be fierce investigators; other members are Bill Thomas, John Thompson, Bob Graham, Heather Murren, Peter Wallison, Keith Hennessey and Douglas Holtz-Eakin. 


Status: TBD


Decision #3 Corporate Dollars Allowed into Direct Political Advertising

The Supreme Court recently revisited a case relating to whether or not corporate dollars can go to pay for ads in the days leading up to an election (based on the "Hillary" movie case Citizens United vs FEC) but have not yet decided corporations can play this role in elections or if McCain-Feingold campaign finance can go away altogether. 5 of the 4 Justices went as far as to say that corporate dollars are equal to free speech. The problem with this articulation of large piles of money is that it disregards the fact that they are helping the paid media kind of free speech trump any other form of speech; they are saying that corporations can have more free speech than regular people without that kind of loot; money should be able to determine politics leaving one person one vote as a nice thing in theory; and money should determine who is best heard when it comes to political elections. Free speech referred to in the Constitution is the kind we all care about and is not quite the kind that is enabled by large piles of money, by the way. The problem this Decision presents for financial reform is that because large financial corporations have more money than the middle class to give to elections, these corporations have a greater ability to elect someone who works in their interest over ours.


Status: Undecided


#4 Members of Congress Turn out to be Antireform Leaders

Senator Dodd chairs the Senate Banking committee and also is taking a lead on the healthcare bill, while Barney Frank proves to be a tepid chair of the House Financial Services Committee. These committees must be held accountable to working in the interest of financial security from the bottom up.


Status: Undecided


#5 Too-Big-to-Fail Is Out of Sight

Congress, the president, and the American public can fail to address the the too-big-to-fail problem. Doing so helps the largest banks to increase in size and wealth and transfers to them more money and resources from working America. Bernanke continues to work in the interest of helping the largest banks grow in size and wealth above a socially-responsible level. Having a class of businesses that are categorized as too-big-to-fail leads to moral hazard for those companies when they know they expect to be rescued by the government. If it were not for their size and breadth of interconnectedness, the problems caused by the largest banks would not be a problem. Over-concentration of the nation's financial activities in just a few too-big-to-fail institutions creates a system that is less competitive, offers less valuable products for the consumer, and creates a less stable financial system.


Status: Undecided


#6 Deregulation continues

Regulation is being framed by the banks as an extra layer of bureaucracy even though deregulation was key to the crisis. After the Great Depression, FDR passed a law to separate the risky, winner-takes-all kind of banking from the public's deposits. That law went away when Clinton was heavily lobbied by Citigroup. Then, banks were allowed to keep smaller and smaller safety cushions against risk and derivatives and subprime securities skyrocketed. We need to stop letting banks make risky bets connected to ordinary deposits, one way or other. We need to close gaps and harmonize the regulatory process.


Status: Undecided 


#7 Inflation Worries Set as Priority, Foreclosure Mitigation on the Backburner

Foreclosures must be addressed in tandem with worries about inflation. Trillions of dollars are guaranteed by the Federal Reserve to fund the same financial activities that led to the economic crisis - the proliferation of derivatives and securities continues, the US deficit increases and the Federal Reserve increases the risk of rapid inflation. As the administration concentrates on putting resources behind banks' risky activities, more middle and lower income families go deeper into debt and lose their homes.


Status: Soon to be lost


#8 Banks Use Bailout Money on Lobbying and Bonuses

Precious taxpayer dollars have gone to waste, such as CEO bonuses and lobbying Congress in their favor. Bailouts were given to the banking sector with almost no strings attached. Now, the banks are paying lobbying groups to lobby against fixing the financial system.


STATUS: Lost


#8A CEO Bonus and Compensation Don't Depend on Long-term Performance 

A weak bill on how to determine pay has been introduced; CEO's can still get away with billions of dollars with companies designed for bubbles and short term gain.


Status: Undecided


#9 Consumer Protection Indirectly Addressed

Obama advocates for and Congress will consider putting a consumer protection measure, or regulatory agency, in place. In order to stop holding strong as the China of unsafe financial products, a mechanism and process to gauge product safety for the consumer must exist. Consumers should not be offered usurious products that put them in an insurmountable cycle of debt, while proposals like the mortgage cramdown should be considered so that low- and middle- income families can respond to job losses and the housing crash.


Status: Undecided


#10 Obama Stays in the Passenger Seat

Obama is intellectually disengaged on big questions facing our financial services industry, the economy as a whole, and Wall St's domination of our political system and allows Geithner to dictate all economic recovery plans. Rather than developing a broader, less bank-centric economic approach, Geithner and the banks continue to be thought of as knowing best.  We should expect more of Obama and that he understand how to put the public's interest above the largest banks.


Status: TBD


We can end up fumbling at an economic recovery. It's hard to win these Decisions and the banks will push for policies in their favor from every angle.

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