Like so many who worked to defeat the Republicans in November 2008, I was convinced that despite the nightmarish economy we were about to 'inherit' in January 2009, in the process we were going to be given a once-in-a-lifetime opportunity. It would give government back to the middle class and throw out the 30 years of laissez faire financial regulatory practices that had almost single-handedly destroyed our economy, left us with greatest income inequality ever, and saddled future generations with crushing federal indebtedness.
The easiest target, and the one I was convinced we would tackle first, was Wall Street: the profit-driven, greedy, selfish institution that, with its unbridled compensation practices and current light-touch regulatory regime is, I truly believe, behind almost every major societal and economic ill that has befallen the United States since 1980.
I knew we couldn't change Wall Streeters, but when it came to reining them in, properly regulating them, and, in some cases, punishing them, it was going to be like shooting ducks in a barrel. All the pain they had caused was obvious, and the 'evidence' even then was laid out more clearly than in a Law & Order episode. And we would be finished early in 2009, for sure.
Well, as Pogo said in the long-ago comic strip, "We have met the enemy and he is us." We have already let Wall Street off the hook, as they say, for fully a year more than I ever thought possible, because of apologists for Wall Street within both the White House and Congress. But even more concerning, depending on how the upcoming House and Senate conference on financial regulatory reform legislation turns out, we may be about to give the Street 'soft-touch' regulatory reform that it will laugh about -- and again run to the bank with -- for at least a generation.
Once you've missed some or all of a God-given major regulatory reform opportunity, political exhaustion sets in and abusive practices become even more abusive and embedded. In the specific case of Wall Streeters, if we miss 'getting' them now, as they say, these greedy guys will simply get greedier and their practices more harmful as their securities become ever more complex and thus beyond any reasonable regulatory oversight capability.
As sort of a 'canary in the coal mine' to larger financial reform, we've seen on the relatively simple issue of trying to reform the abusive tax treatment of "carried interest," which costs the Treasury $10 to $12 billion per year, just how disingenuous, misleading and vile the anti-financial reform crowd can be. Thus it comes as no surprise that the very same tactics and in some cases, even the very same lies, which have been used over the last nearly four years to push back on carried interest reform have now been embraced by many of the Republicans who just voted against the Senate's finance reform bill. And the similarities between the two efforts will be even more apparent in coming weeks as the actual reconciliation with the House version takes place.
For example, last Thursday, Senator Richard Shelby (R-AL), ranking member of the Senate Banking Committee, said, with regard to the Senate Bill, "I cannot support legislation that threatens business conditions and threatens job creation." On the very same day, May 20, the President of the grossly self-serving Private Equity Council said that any change in the taxation of carried interest would "hurt those companies that are most desperately in need of capital to sustain or create jobs."
This is such B.S., as neither overall financial reform nor reforming carried interest has anything at all to do with 'job creation,' and it is unconscionable to threaten the American people this way. At the onset of this Great Recession, which we now know was brought on mostly by Wall Street and investment excesses, the number of real unemployed Americans was 16.8 million -- the number today is 30.3 million, an increase of 13.5 million, and we are 'short' 22 million jobs in order to be at or near full employment. Substantially and quickly reforming the villain that largely caused the Great Recession is the sine qua non to creating those 22 million jobs, not the other way around, as these fellows falsely insist.
The next several weeks are when the substantial financial industry reforms that were promised in the 2008 presidential campaign will come to pass -- or not. There will be at least seven 'indicators' of who won in conference, and pray God, it isn't, as it was in 1999, Wall Street and, to steal a phrase from President Obama, its "hoards of lobbyists", which have already spent an unbelievable $1 million per Member of Congress (more than $500 million in total!) lobbying on these issues.
Specifically, we need to see:
- As proposed by the House, the consumer protection reform goals met through a stand-alone agency (the "Consumer Financial Protection Agency") subject to annual budget appropriations by Congress, rather the Senate's weak alternative of a consumer protection bureau within the Federal Reserve. (This has everything to do with foxes, chickens and henhouses, and the idea of housing consumer protection within the ineffective and uninterested Federal Reserve needs to fail.)
- Ideally, no compromise, least of all by the administration, on Senator Lincoln's (D-AR) requirement that big banks spin off their trading in swaps into separate subsidiaries. But if the Senator fails, and the strength of the opposition within the administration suggests sadly that she will, then at least the House version of the so-called "Volcker Rule" has some teeth, whereas the Senate's (which is Geithner's) version calls for nothing more than a namby-pamby "period of study".
- No 'shielding' of auto dealers from oversight by the new consumer agency. The House is just wrong on this.
- As proposed by Senators Cantwell (D-WA) and Feingold (D-WI), and others, no loopholes when it comes to regulating the trading of derivatives.
- Application of the concept of "insurable interest" to all credit default swaps, together with the outright barring of "naked" credit default swaps. Regarding the latter, just as you can't take out a life insurance policy on a stranger, you shouldn't be able to use swaps as a form of 'death insurance' to bet that an asset or financial activity will fail.
- No compromise when it comes to insisting that "failing" financial institutions be reviewed by a special panel of bankruptcy judges. (There is no good reason for the administration to be resisting this, and they shouldn't.)
- Some restrictions on excessive compensation overall and especially at "failing" institutions, to absolutely include the 'clawing back' of ill-gotten individual earnings. If not now and not in this bill, then when and where?
Wall Street is desperately in need of reform, yet, because of the ways it compensates itself, it is incapable of self-reform and fairness. We know from countless examples its self-serving (and selfish) tactics, we know the harm it has done, and we know the even greater harm it can do if left unchecked.
President Obama needs to vigorously and resolutely weigh in on the House-Senate conference efforts and make sure that the bill that comes out of the reconciliation process reflects the results and values that he talked about during his campaign -- he simply cannot leave it to Wall Street and its industry lobbyists, to the 'diluters' and 'over-compromisers' on Capitol Hill, or to the Wall Street apologists within his own administration and hope that Congress produces strong financial regulatory reform legislation. Opponents of reform learned years ago, more than proponents ever have, that 'in conference' is where reforms can easily die (and greedy guys can win even more).
Leo Hindery, Jr. is Chairman of the US Economy/Smart Globalization Initiative at the New America Foundation and a member of the Council on Foreign Relations. Currently an investor in media companies, he is the former CEO of Tele-Communications, Inc. (TCI), Liberty Media and their successor AT&T Broadband. He also serves on the Board of the Huffington Post Investigative Fund.