A Great First Step for Wall Street Reform

In my last post, I cited a New York Times story that indicated that most economists think the American Recovery and Reinvestment Act is helping to create jobs and stimulate our economy. Earlier this week, the non-partisan Congressional Budget Office confirmed the economists' findings.  

According to the CBO, in the third quarter of this year alone, 600 thousand to 1.6 million jobs were directly created or saved by the American Recovery and Reinvestment Act, reducing our country's unemployment rate by 0.3 to 0.9 percent. This is an especially important finding for my home state of California, which at 12.3 percent, suffers from the third worst unemployment rate in the nation.

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Town Hall Concerns and Capitol Hill Action

In my last post, I cited a New York Times story that indicated that most economists think the American Recovery and Reinvestment Act is helping to create jobs and stimulate our economy. Earlier this week, the non-partisan Congressional Budget Office confirmed the economists' findings.  

According to the CBO, in the third quarter of this year alone, 600 thousand to 1.6 million jobs were directly created or saved by the American Recovery and Reinvestment Act, reducing our country's unemployment rate by 0.3 to 0.9 percent. This is an especially important finding for my home state of California, which at 12.3 percent, suffers from the third worst unemployment rate in the nation.

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Weekly Audit: Too Big to Fail is Just Too Big

by Zach Carter, Media Consortium Blogger

Last week, President Barack Obama released key legislation designed to fight the banking industry's too-big-to-fail problem. But Obama's plan doesn't actually address too-big-to-fail at all. It reinforces a broken system in which economically dangerous companies are bailed out whenever they drive themselves to the brink of failure.

If we want the economy to support all people, we have to break up the big banks and start treating the creation of good jobs as an economic priority on par with Wall Street rescues.

The editors of The Nation break the political debate over banking into three camps:


       
  • The first camp is composed of bank lobbyists, Republicans and conservative Democrats and wants to do nothing.

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  • Camp two, endorsed by the White House and influential Rep. Barney Frank (D-MA), would impose tougher regulations on too-big-to-fail banks to keep them from getting out of control.

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  • The third camp wants to go even further: If a bank is too-big-to-fail, it is also too-big-to-regulate. Companies that pose a danger to the economy have to be split up into smaller firms that cannot induce economic ruin.


The Nation editors rightly see the third strategy as the most sensible. While the "break-up-the-banks" policy is being portrayed as a left-wing pipe dream by cable news networks, the policy actually relies on an age-old observation of conservative economists. Regulators make mistakes, and they often get co-opted by the very industries they are supposed to be supervising.

The practical policy is to impose structural limits on what activities banks can participate in and how big they can get. Just look at the list of high-profile supporters: former Federal Reserve Chairman Paul Volcker, former Citigroup Chairman John Reed, Bank of England Governor Mervyn King. I don't remember seeing any of those guys at the Iraq War protests.

Many of the regulatory blind spots that brought down the economy were obvious to some policymakers for years. Back in 1994, Sen. Byron Dorgan (D-ND) wrote an article for The Washington Monthly warning that derivatives trading was putting the economy in grave danger. Commodities Futures Trading Commission Chair Brooksley Born tried to take action on these derivatives, but was overruled by other regulators, including then-Fed Chair Alan Greenspan, and then-Treasury Secretary Lawrence Summers, now the top economic adviser to President Obama. Summers and Greenspan even convinced Congress to pass a law banning the regulation of key derivatives, including credit default swaps, which ultimately brought down insurance giant AIG.

Fifteen years after Dorgan's article first ran, The Washington Monthly is featuring it again, along with a recent speech by Dorgan that details massive failures in Wall Street and Washington.

"We had regulators come to town in recent years and willfully boasted that they wanted to be blind as regulators," Dorgan says.

There are good elements of Obama's plan to deal with too-big-to-fail. It gives policymakers the option of putting a too-big-to-fail institution through a special bankruptcy process administered by the executive branch, thus avoiding the problems created in bankruptcy court when Lehman Brothers failed. But the bad part is really bad: Officials would also have the option to provide unlimited bailouts to Big Finance via loans, guarantees and even asset purchases.

As Mike Lillis notes for The Washington Independent, some responsible Democrats like Rep. Brad Sherman (D-CA) have been objecting to this aspect of the legislation for months. Sherman, in fact, calls it "TARP on steroids," noting that the bank bailout at least came with some meager oversight and a limit on the program's actual size.

The bank lobby is spending money like mad to maintain their stranglehold on the economy. Neither Congress or the administration will change course without intense public pressure. So it was very reassuring last week to see thousands of people protesting the annual meeting of top bank lobby group, the American Bankers Association. David Moberg chronicles the protest in a blog post for Working In These Times that covers speeches by both key union leaders and ordinary people facing foreclosure after watching their tax dollars go to the very bankers who wrecked the economy.

"There was broad agreement on anger at the banks for providing so little, if any, public benefit for the massive bail-out, and for so quickly returning to the greed and abuse that precipitated the crisis," Moberg writes.

Laura Flanders covers the protests for GRITtv, including video of protesters chanting "Bust up big banks!" In a roundtable discussion with Christina Clausen of the United Food & Commercial Workers Union, George Goehl of National People's Action and Rob Robertson of the Right To The City Alliance, Rolling Stone journalist Matt Taibbi explains the overriding impotence of the regulations Congress is about to approve. Regulators will not be able to crack down on abusive derivatives, a full 8,000 of 8,200 banks will be exempt from Consumer Financial Protection Agency oversight, while the same agencies that screwed up heading into this crisis will be charged with preventing the next one.

"They've had sweeping powers to do whatever they wanted," Taibbi says. "They've had this regulatory power all along."

What we need are good jobs, and lots of them. Obama's economic stimulus package has made tangible economic progress. It's saved hundreds of thousands of jobs, and is clearly responsible for the turnaround in gross domestic product (GDP) we saw in the third quarter. But a full 17% of the workforce remains unable to find full-time work, as Julianne Malveux explains for The Progressive.

When Wall Street crashed in 1929 and unleashed the Great Depression, the government eventually stepped in as an employer-of-last-resort. The Works Progress Administration (WPA) and Civilian Conservation Corps (CCC). built schools, parks, roads and bridges which still serve our communities today. Both the WPA and the CCC employed literally millions of people--in the 1930s. It's a model that could work very well today.

As the current recession makes clear, ending too-big-to-fail and guaranteeing a good job for everyone in our society who wants one are the two most critical structural reforms our economy needs. Don't let lawmakers forget it.

This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.

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Scary Isn't a Kid in a Halloween Costume

Kids in costumes can be scary -- but the greatest fear is what adults in suits have done to the nation.

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A Major Achievement

By: Inoljt, http://thepolitikalblog.wordpress.com/

A few days ago the House of Representatives passed the Student Aid and Fiscal Responsibility Act, a meaningful reform of the way student loans are dealt with.

In my mind, this bill constitutes one of the Obama administration's most important accomplishments.

To understand why, provided hereafter is an explanation of what the bill does. In recent years, the cost for college has increased tremendously, to the point where total expenses exceed per capita American income. Therefore the federal government encourages banks to loan money to students. These loans are guaranteed and subsidized by the government.

Unfortunately, private banks are not in the business to help students. Many private student loans can be compared to sub-prime mortgages; they charge exorbitant interest rates, add numerous fees (e.g. the origination fee), and often take advantage of vulnerable, low-information customers. Moreover, under Republican banking reforms, student debt cannot be wiped away through bankruptcy.

Continued below the fold.

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