President Obama was right to call out John Boehner today for describing our economic catastrophe as an "ant" that didn't deserve a strong response. That "ant," as the President pointed out, "led to the loss of nearly eight million jobs" and "cost people their homes and their lives savings." But the President seriously oversold the Dodd-Frank bill in an otherwise stirring speech in Racine, WI when he said this:
"W) e're on the verge of passing ... reform that will prevent a crisis like this from happening again ...Reform that will protect consumers against the unfair practices of credit card companies and mortgage lenders. Reform that ensures taxpayers are never again on the hook for Wall Street's mistakes."
President Obama spoke eloquently about the millions of Americans who are still suffering economically, but these claims are simply not true. The consumer protections the President described in his comments are real and praiseworthy, and so are the bill's transparency provisions. But Dodd-Frank still leaves the entire system at risk of another crisis. It does not "protect our economy from the recklessness and irresponsibility of a few," nor will it ensure that "taxpayers are never again on the hook for Wall Street's mistakes."
What's more, events of the last couple days have left some of us who supported Dodd-Frank as a good, if incomplete first step feeling as if we've been played. While the bill as initially proposed didn't do nearly enough, it did provide some needed first steps: it created a (somewhat compromised) Volcker rule and it implemented a version of the Lincoln amendment to reign in derivatives. These provisions at least began the process of reigning in the Wall Street casino, and they seemed to open the door for further improvements. But dealmaking with Scott Brown and other Republicans (why not deal with progressives Cantwell and Feingold, who also said they won't vote for it?) have watered down these key provisions to near-meaninglessness.
While a fog of confusion remains, it appears that Goldman Sachs and Citigroup will now have up to twelve years to comply with the modified Volcker rule. That's twelve years of grave risk for the rest of us. According to my calculations, those two companies alone are 31% of the total derivatives market. As for Lincoln's amendment, Business Week reported its dilution in a piece entitled "Banks Dodge a Bullet ...." Economist Dean Baker called the revised amendment a "fig leaf," while an analyst offered the dry understatement that it "won't have a colossal impact."
A note to the President and the Democrats in the House and Senate: We all recognize that compromises are sometimes needed to pass legislation. And we understand that it's politically necessary to trumpet your victories. But you also need to send a signal to the country that you understand how urgently we need broader, systemic reform. And all reform-minded politicians need to draw clear lines between those who would have done more and those who obstructed them.
This bill has some good provisions, but we're still in economic danger. We still live in an economy where five banks control 97% of the derivatives market. Too Big To Fail banks still hold the rest of us hostage while profiting like blackmailers from their size. Another economic crisis could be coming even as millions of Americans remain mired in the last one. Our leaders need to let us know that they understand that. Otherwise, those of us who went head-to-head with others to defend your bill (as I did with Dylan Ratigan) will be left wondering if we did the right thing.
When Democrats oversell this bill they leave themselves open to the criticism that they don't understand what's happening out here on Main Street. That's the very criticism that empowered the Tea Partiers to put Scott Brown into office (along with big boosts from Wall Street). So what impact did these Massachusetts "populists" have on financial reform? Their candidate single-handedly won an exception to the Volcker rule that will allow banks to invest billions more of their of shareholders' money in risky hedge funds and private equity firms.
You say you want a resolution ... And Scott Brown - that tribune of the "New American Revolution" called the Tea Party - wasn't done. He was also able to protect our largest financial firms from a $19 billion tax to finance the resolution and winding down of failing large banks, distributing that cost instead among more bank, and indirectly to their customers and the taxpayer (in the form of accounting tricks with TARP funds and FDIC depositor insurance). So here's a message for those people with tea bags hanging from their hats: The hedge funds of America thank you for their billions.
Not that the message is likely to get back to them. As long as Democrats brag that this bill "protects us from future crises" they're missing an opportunity to explain how and why their opponents (and the Wall Street appeasers among them) left the job partially undone. The way out is to explain to the American people that this bill does some good things but still leaves our most urgent work unfinished, thanks to obstructionism on the right.
Consumer confidence plunged last month because Americans are fearful about their jobs and the overall economy. Why shouldn't they be afraid? They don't seem to have anyone they can trust to fix these problems. The "populists" in the Tea Party really work for Wall Street, and the Democrats - the party that should be drawing sharp distinctions - are pretending this bill solves everything.
The President made terrific comments about jobs, clean energy, and other critical economic issues today, and he was a powerful advocate for the constructive role government plays in areas like regulation. That was good to hear. But this is no time for Pollyanna-ish proclamations that this bill will fix Wall Street or prevent the next crisis. It won't. Pass it for its consumer protections and minor tweaks to slot machines in the Wall Street casino, but recognize its weaknesses and pledge to fix them. Our leaders need to send a clear signal to their supporters and the American people at large: We know we're still at risk, we know what we still need to do, and we won't rest until the job is done.
Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America's Future. This post was produced as part of the Curbing Wall Street project. Richard also blogs at A Night Light.
He can be reached at "email@example.com."
Website: Eskow and Associates