Flush with Cash From Bank Lobbyists, Conservative Dems Are Killing the Consumer Protection We All Need

The House Financial Services Committee is full of loudmouthed conservative ideologues and right-wing eccentrics.

Just about every time the panel meets, you can expect to hear a long sermon about anything from the price of gold to the sanctity of Wall Street CEOs' obscene paydays.

Earlier this year, the top Republican on the panel, Rep. Spencer Bachus of Alabama, made a public embarrassment of himself when he went around boasting to reporters about the secret list of congressional "socialists" he had compiled.

Fortunately, Bachus and his cohorts pose almost no threat to the legislative process. After the 2008 elections, the Financial Services Committee swelled to 71 members, with Democrats holding a commanding 42-29 majority.

The panel is chaired by Barney Frank of Massachusetts, one of the most capable lawmakers in Congress. If Democrats want to do just about anything to rein in abusive practices in mortgage lending, credit cards or payday loans -- or to stem the tide of foreclosures -- they can get it done without the support of the committee's right-wing zealots.

But it has failed to take serious action on any of these fronts this year.

The standard partisan conflict between Democrats and Republicans doesn't capture the main source of tension on the panel. The real contest is between bankers and citizens. And if you include the 17 Democrats who are card-carrying members of the conservative Blue Dog and New Democrat coalitions, the banks hold a four-seat majority.

If you add in the otherwise centrist or progressive members who routinely vote with the bank lobby, then the advantage increases to seven or eight seats. Big Finance wins.

Even after watching the banking industry drive the entire global economy into the worst crash since the Great Depression with a flood of predatory mortgages, Congress has still been unable to stomach any change to our regulations protecting borrowers that isn't banker-approved.

You won't see them standing up and making grandiose speeches in defense of Wall Street's inalienable right to pillage our pocketbooks, but behind the scenes, dozens of Democrats are doing hatchet work for the nations' biggest banks.

Take Rep. Walter Minnick, D-Idaho. In 2008, he was elected as the first congressional Democrat to represent the state in 15 years, and he quickly threw in his lot with the Blue Dog Coalition, one of eight such members on the Financial Services Committee.

He cut his teeth in politics as an aide to President Richard Nixon in the '70s, but his economics are significantly to the right of his former boss. He voted against President Barack Obama's stimulus package early this year, and he earned a perfect score from the radical right-wing anti-tax group Club for Growth. On economic issues, he's as predictable as Minority Leader John Boehner, R-Ohio.

Last week, Politico reported that he was pushing a plan to scrap Obama's proposal for a Consumer Financial Protection Agency. Frank was quick to tell the Huffington Post that Minnick's idea was not being seriously considered, but Minnick's spokesman tells me he is still talking with Frank, and that the two "share similar goals" about making sure companies are subject to "appropriate regulations."

Frank just released a new bill watering down the legislation suggested by Obama. Minnick has not yet destroyed the CFPA entirely, but he and his cohorts have already extracted a few pounds of flesh.

It's pretty easy to figure out who is giving Minnick his marching orders. On the morning of Sept. 24, he lashed out against the CFPA in a speech before the U.S. Chamber of Commerce. The Chamber of Commerce is the most powerful lobbying machine for the corporate executive class, and it's dedicating massive resources to kill regulations that would protect consumers, taxpayers and the economy as a whole from Wall Street's excesses.

Minnick's spokesman tells me he didn't get paid to give the talk, but the Chamber is spending $2 million on an effort to torpedo the CFPA.

Its latest ad is an incredible whopper, arguing that local butchers and bakers will suffer if the CFPA is established, since looking out for consumers will make doing business more expensive. It's not an argument against having a separate agency to protect consumers: the Chamber of Commerce is actually arguing that any form of consumer protection will hurt the economy and making that argument in the middle of a recession caused by bank predation.

"It's the financial equivalent of death panels," Rep. Alan Grayson, D-Fla., said.

The U.S. economy desperately needs to start protecting citizens from financial predation.

The foreclosure epidemic has slipped from the headlines, but it's getting worse by the day. According to data compiled by the bank lobby, more than 5 million homes were at least 60 days overdue or in foreclosure at the end of June. The nonpartisan Center for Responsible Lending expects 9 million homes to be lost to foreclosure by the end of 2012. That's almost 20 percent of all mortgages in the United States.

For a full five years, the entire U.S. mortgage industry was hijacked by what Treasury Secretary Timothy Geithner called "systematic predatory practices without restraint." The rest of the consumer banking industry -- credit cards, checking accounts, payday loans and auto loans -- is a nightmare for too many of its customers.

Banks routinely score more money from penalties and fees than they do on loans. The finance industry reaps roughly $17.5 billion a year from overdraft fees, according to the CRL. To put that number in perspective, the entire banking system posted a combined profit of $10.2 billion in 2008.

Once they get their hooks into tapped-out borrowers, they can be tenacious. Payday lenders routinely charge borrowers interest upwards of 700 percent for small loans used to pay other bills, creating a cycle of debt that can take years to pay off.

This insanity is enabled by dozens of regulatory loopholes and an alphabet soup of multiple federal agencies, all of which are charged primarily with making sure banks don't fail. That focus on protecting bank profits means that today's regulators almost never raise the alarm on predatory practices, until the damage is both epic and public.

The clear solution is to strip these failed agencies of their consumer-protection mandate and give it to a new body that answers only to consumers, not bank balance sheets. If a company is in the business of making loans to consumers, it has to play by the new agency's rules. It's by far the most important reform Obama has proposed in his Wall Street overhaul.

But Minnick and other more-established conservative Democrats are on the attack. One of the most prominent is Rep. Melissa Bean, D-Ill., vice chairwoman of the New Democrat Coalition.

Although not as visible as the Blue Dogs, with whom they share several members, New Democrats are reliable advocates for the conservative economic policies that created today's recession. Although they advertise themselves as "pro-growth" or "pro-business," they're really just "pro-CEO."

Bean and freshman Rep. Jim Himes, D-Conn., a former Goldman Sachs vice president, head the New Democrat's "task force" on financial regulation. Like the Chamber of Commerce and the American Bankers Association, their top goal right now is defanging the CFPA so that Congress can celebrate establishing a new regulator while Wall Street celebrates its powerlessness.

Himes and Bean are being flooded with money from the bank lobby.

According to the Center for Responsible Politics, Bean has raked in over $270,000 from the finance, insurance and real estate industry for the 2010 elections, more than all other industries combined, with top donors including Goldman Sachs, Credit Suisse and the American Bankers Association.

Himes has scored $299,000, with major contributors including Credit Suisse and bailout barons Citigroup. That may not sound like much in context of the multimillion-dollar hauls that senators make off with from health insurers, but House help is cheap for bankers.

In the financial world, Frank is the most powerful man in Washington outside the Obama administration, but his own campaign coffers have seen $238,000 from Wall Street this cycle -- both New Democrat leaders are getting paid more than their committee chairman, one with tremendous influence and credibility.

Bean's spokesman told me she was waiting to hear more from Frank on the issue and insisted they share the same goal of protecting consumers.

Himes' spokesman also would not send me detailed policy objectives for consumer protection, but said that he and other New Democrats thought Obama's plan was "too broad" and needed to be "scaled back."

But what should we expect from Democrats that hail from moderate and conservative districts? Democratic and Republican leaders send vulnerable new members to the Financial Services Committee, where they can be expected to rake in campaign contributions from the bank lobby that helps their re-election prospects.

We could expect much, much more. There are several legitimate progressives and consumer advocates on the Financial Services Committee, among them Grayson, Rep. Brad Sherman, D-Calif., Rep. Brad Miller, D-N.C. and Rep. Maxine Waters, D-Calif.

Miller was taking Federal Reserve Chairman Ben Bernanke to task about income inequality and subprime lending long before the mortgage crisis exploded, and he has been at the forefront of efforts to curb foreclosures for years.

Grayson, a freshman congressman from a pretty conservative district, has not hesitated to rail against bankers' mischief and their regulatory enablers. He has repeatedly grilled the Federal Reserve over its secret bailout programs and tried to stop banks from paying huge bonuses on the taxpayer dime.

Bean, incidentally, was instrumental in sinking Grayson's bonus crackdown.

Grayson seems to think there's still plenty of room under Frank's modified bill to establish a responsible, powerful regulator to protect consumers.

"I think both the Democratic leadership and the administration properly regard it as an essential element of a reform that will prevent the risk of another Great Depression," Grayson told me, arguing that Frank's bill, "saves the essential element of this, which is to create an agency which is not focused solely on the safety of the financial institution, but rather focused on the well-being of the customers."

Sherman is not so optimistic: "I'm not sure if we're going to pass anything that seriously changes how Wall Street does business."

If lawmakers are going to sell out the public for political reasons, they could at least pick a popular issue to sell out on. Blocking consumer protection at the behest of the bailed-out millionaires on Wall Street is not going to play well in campaign season. And it shouldn't.

When Wall Street purchased our democracy, it bought decades of deregulation that led to the worst recession since the Great Depression and income inequality even more severe than the Gilded Age of the 1920s. Wall Street Democrats may not act as nutty as their Republican counterparts, but they're dealing out the same economic damage.

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