A lot of progressive leaders and writers, yours truly included, have expressed concerns about Bill Daley's appointment as COS. One of the most depressing pieces was written by Simon Johnson, the former IMF chief economist who has written brilliantly and compellingly over the last couple of years about banking issues. His entire piece is well worth reading, especially in light of the mess these uber-powerful big banks have made of the housing, mortgage, and foreclosure situation. With judges increasingly incredulous and angry at the fraud and shoddy record keeping of the banks and their lawyers, and an ever wider spectrum of economists and bank analysts increasingly alarmed by the implications of the foreclosure crisis, and the size and economic dominance of the big banks, it is not surprising that folks like Simon are expressing these concerns.
Simon's basic argument, which as he writes is shared by many other major economists across a wide ideological spectrum, is that the big banks' size, fundamental business model, and political clout are both preventing a stronger economic recovery and virtually guaranteeing another major financial crisis in the near future. He points out that the 6 biggest banks now control assets worth 64% of GDP, up dramatically from the 55% they controlled before the crisis at the end of 2006, and up overwhelmingly from the 17% they controlled in 1995- only 16 years ago. Economic changes that massive are unprecedented and terrifying.
Simon's fear is that since Bill Daley comes from one of the big banks, any hope of taking the banks on in terms of these big issues is gone. As he writes:
Bill Daley now controls how information is presented to and decisions are made by the president. Daley's former boss, Jamie Dimon, is the most dangerous banker in America - presumably he now gets even greater access to the Oval Office. Daley is on the record as opposing strong consumer protection for financial products; Elizabeth Warren faces an even steeper uphill battle. Important regulatory appointments, such as the succession to Sheila Bair at the FDIC, are less likely to go to sensible people. And in all our interactions with other countries, for example around the G20 but also on a bilateral basis, we will pursue the resolutely pro-big finance views of the second Clinton administration.
Top executives at big U.S. banks want to be left alone during relatively good times - allowed to take whatever excessive risks they want, to juice their return on equity through massive leverage, to thus boost their pay and enhance their status around the world. But at a moment of severe financial crisis, they also want someone in the White House who will whisper at just the right moment: "Mr. President, if you let this bank fail, it will trigger a worldwide financial panic and another Great Depression. This will be worse than what happened after Lehman Brothers failed."Let's be honest. With the appointment of Bill Daley, the big banks have won completely this round of boom-bust-bailout. The risk inherent to our financial system is now higher than it was in the early/mid-2000s. We are set up for another illusory financial expansion and another debilitating crisis.
I think Simon is right on the economics of the financial system, that the big banks are way too big and powerful, and have a stranglehold on both our economics and politics. But I am a little more optimistic on the political dynamics with Daley, simply because by the President appointing a JP Morgan Chase banker, I think the administration will have to bend over backwards to look like they are not doing sweetheart deals for the bankers. Anytime they do something to help the big banks, or even just to defer to them on something, activists, analysts like Simon, media people like Dylan Ratigan and Eliot Spitzer, and maybe even Republicans for political advantage will be jumping all over the administration. In an odd sort of way, Daley's appointment could be the best thing for the progressive organizers and media people on the banking issues, because it gives us a hook we can use in our organizing. Anytime Elizabeth Warren is being messed with, we can push back and ask why. Any attempts to help bail the banks out again, or help them out of the legal problems they have created for themselves on foreclosure, we can raise hell and ask what the hell is going on. Bill Daley is a smart enough guy to understand this dynamic, and will not want to be seen favoring the banks with the access he provides or appointments that are made.
Here's the other thing to remember, though: White House Chiefs of Staff, while of course very powerful players, are not the end-all and be-all in terms of administrative decisions. I worked with all 4 chiefs of staff in the Clinton White House, and they ranged from Erskine Bowles at the most conservative to John Podesta at the most liberal, but there were no appreciable differences as far as I could tell in the kinds of policy decisions being made by Clinton. Or look at Rahm in this White House: his advice got ignored a lot of the time, including on the biggest decision of Obama's presidency so far, whether to push forward on comprehensive reform after Scott Brown won. The fact is that Presidents make decisions for all kinds of reasons and are influenced by all kinds of factors. Chiefs of Staff organize decision flow and staffing operations, but don't tend to drive Presidents to do things they wouldn't ordinarily do. The COS is important, but not determinative. What is more important by far than the Chief of Staff's personal views on issues are the outside political dynamics that drive the debate. That is why progressive activists need to redouble our organizing efforts, and use the political dynamics that are in our favor.
One thing people should not forget is that the single most progressive populist Presidential campaign in the last 35 years, the Gore campaign in 2000, (remember "the people vs the powerful"?) was chaired by Bill Daley. That wasn't because of Bill, but because of the political dynamics of that race and the political instincts of the candidate.
Progressives cannot afford to take the attitude that with Daley as COS, all is lost and we should just give up on trying to influence policy and politics in regards to economics and other issue areas. We need to keep pushing the administration to listen to us, but also use every other leverage point we have to influence the political dynamics around us.
Cross-posted at my home blog, OpenLeft.com
Lest we forget, the Great Depression, in large part, was driven by a drastic run on all banks, with smaller bank failures being the driving force in the spiral downward.
Worrying about what a bank is actually supposed to do, rather that the nonsense about size, would seem to have far greater impact on the function of the banking system, as far as I know.
Be it 6 "megabanks" or 600 big banks, the "interconnectedness of the modern finanical system" would be no different. Failure in the banking sector still ends up hurting the comminuties where they operate.
When a bank, period, fails, the FDIC steps in and works through the process of securing deposits, to a point, and re-organizing what's left of value in the failed bank. Whether it be 600 large checks or just 6 uber checks, that core function does not change. In fact, the only real impact of the "megabank", as far as I'm concerned, is that it'd end up taking far more capital to restructure said institution, and at far more risk to the FDIC, if failure were to happen. Nothing more and nothing less.
Glass-Steagall, in all likelihood, will likely never return as the "law of the land", but the proposed Volker Rules, cast aside by nearly all the blogs during the actual financial rules debate, would've actually taken a definitive and practical measure in actually dealing with the potential problems.
With a clear and unambiguous declaration of what banking functions the public ought to protect and what functions the public ought not to protect, the debate would've moved easily.
-The FDIC and federal authorities have the utter responsibility to protect and backstop commercial banking activities. [Checking, Savings, Loans, Bonds, Currency and Commodity derivatives.]
-The federal government has the responsibility to include a mechanism to liquidate failing investment banking institutions [Insurance, Stock products, complex derivatives, etc.]
-Any financial institution that has the commercial banking business protected by the public, must fully seperate any investment banking activities into a seperate entity, completely divested from access to commercial banking protection.
And yet, people who claim to care about financial reform couldn't even rally to something as easy and straightforward as the Volker Rules. Oh well.
I seriously doubt letting the banks win this one will mean we have leverage in the future... sounds like wishful delusion.
there u have it! don't say u weren't warned.
"Progressives cannot afford..."
That's what Dems always say after they've soldout liberals. If I vote for Obama, what am I voting FOR? Granted I like Ledbetter, DADT, and the universal part of Health Care, but what of the above? When I voted for Obama before, people tell me now I voted for the Afghanistan War. I didn't.
I want a liberal in the primaries like Gene McCarthy. Say...Warren, Grayson, Wiener, or Feingold. Serius change-not chump change.
I'm all for those any of those candidates. I'm tired of hearing from the fatalists who talk about Grayson losing. Before he won in 2008, no Dem had ever won in his Florida district in at least 3 decades.
If that dude calls, I will work my tail off.
If Obama calls, it will ring... and then I'm going to delete the message on the answering machine.