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Wall Street and GOP Senators: 8-Ball in the Side Pocket

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Mattel makes a toy called the "Magic 8-Ball." It looks like a pool ball with a little window in it. You ask it a question, then shake it and an answer pops up in the glass. They were a craze in the corporate world a few years back, and you still see lots of them holding down papers on desks across America.

Democratic financial reform proposals aren't bold enough, but Senate Republicans don't seem to have any proposals at all. All they have is a litany of ways to say 'no.' Listening to them is like asking the "Magic 8 Ball" a string of urgent questions and getting nothing but negative answers.

"Several aides from both parties," reports the Financial Times, said that "Republicans had opposed in private a plan to impose tougher capital and liquidity requirements on companies that posed a risk to the financial system."

Can we agree that companies that endangered our economy need to be held to higher standards? My reply is no, says the Republican 8-ball.

"Meanwhile," writes the Financial Times, "people familiar with the continuing bipartisan talks say a council of regulators will be proposed to tackle 'systemic risk,' rather than the alternatives of setting up a regulator or giving the power to the Federal Reserve."

Can we create a single regulatory body with clearly defined authority and the ability to ensure that our entire economy isn't endangered again in the future? Very doubtful.

"(Republicans) are happy to set up monitoring of possible bubbles but say the whole concept is too vague for an immediate introduction of sweeping powers."

Can we provide an agency with the authority needed to identify problems and act before they endanger the global financial system? Don't count on it.

"Securities and investment protection rules proposed by Charles Schumer, the New York senator, may also be jettisoned from the package amid continued Republican hostility."

Can we protect investors from financial ruin that's brought on by irresponsible behavior on the part of financial institutions? Outlook not so good.

"Talks between Chris Dodd ... and Richard Shelby, the senior Republican on the committee, broke down more than a week ago because the two could not agree on a proposed Consumer Financial Protection Agency, which would oversee the sale of mortgages and credit cards."

Can we agree that the American consumer deserves to be protected from credit card ripoffs, lending schemes, and the myriad other ways that lenders have managed to shaft borrowers? My sources say no, says the 8-Ball.
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How soon we forget. The American economy -- and the world's -- was devastated by the actions of a small number of under-regulated and under-supervised financial institutions. Hundreds of billions of dollars were transferred from the public coffers to private banks to forestall a catastrophe, and we'll be paying the cost for generations of to come. The nation remains in the grip of a devastating unemployment epidemic and we lack the will to do all that must be done.

The cause of all this damage was a generation of "irrational exuberance" among Washington leaders determined to forget the lessons of the last century. They removed the safeguards that had protected the economy in the years since the Great Depression, and helped Wall Street engage in a free-for-all that caused massive destruction and could have brought the entire system down.

It was a financial and political Satyricon, and all politicians and financial executives were invited. Democrats participated in the orgy, but Republicans sent out the invitations and hired the caterers. Republicans introduced the Gramm-Leach-Bliley Act, but it became law with the active cooperation of Democrats. The law's 1999 passage was soon followed by eight years of anti-regulation governance from the Bush Administration.

At least Democrats appear to have learned some, if not all, of the lessons that should have been learned from the last decade. Judging by their performance in the Senate, however, Republicans have learned nothing. Or more likely their insistent push for Wall Street cash has overcome any vestigial sense of concern they might have had for the structural integrity of our economy.

We just had a meltdown, one that could have resulted in a mushroom cloud, and they still want Homer Simpson in charge of the reactor.

Republicans say they are "unconvinced that any regulator can even define systemic risk." This is a Call to Inaction, plain and simple. There are many economists - including Joseph Stieglitz, Paul Krugman, and the many others who accurately foresaw our problems - who could provide working definitions of "systemic risk." The "definition" argument is a delaying tactic and nothing more.

Republicans also call for "monitoring," not oversight. But "monitors" are powerless to intervene, and lack the muscle need to force disclosure from those they study. GOP Senators want a body that's permitted to observe a disaster in the making but powerless to stop it. Sure, a "monitor" could issue alarming reports, but who would act on them - the Senate? Good luck with that.

The party that's benefiting most from anti-bank "Tea Party" rage -- and is organizing it -- turns out to the party that is most willing to let the banks do whatever they want, regardless of the risks. And the Tea Party populists are doing the bidding of the party that wants to rob people of a watchdog looking out for their interests. The Consumer Financial Protection Agency would monitor lenders and step in when they stick it to the American consumer - by roping in borrowers with deceptive advertising, by imposing penalties for failing to comply with notices contained in deceptive "junk mail"-like envelopes, or by raising interest rates to 29% for borrowers on specious grounds when the prime rate is 3.25%.

Will the Democrats rally the public against the effort to protect the banks' right to hose the American public? Let's ask the Magic 8-Ball: Cannot predict now, it says. That would take political courage. But perhaps a brave Republican or two will join them in doing what needs to be done - or they'll use reconciliation. Where could it be more appropriate than in this situation? The price we've paid for our lack of proper financial oversight is over a trillion dollars. Surely that qualifies under the "Byrd" reconciliation rule as something which will affect our national budget.

These protections are urgently needed to prevent another worldwide disaster -- and to prevent the millions of micro-disasters taking place every day in homes across America. Will there be more crises in the future if the situation stays as gridlocked as it is today? As the 8-ball might say, It is decidedly so.

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Richard (RJ) Eskow, a consultant and writer, is a Senior Fellow with the Campaign for America's Future. This post was produced as part of the Curbing Wall Street project. Richard blogs at:

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Website: Eskow and Associates

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