Weekly Audit: Want Economic Justice? Then it's Time to Act

by Zach Carter, Media Consortium blogger

On Thursday, the U.S. Senate passed a financial reform package that includes a handful of important reforms, but it won’t fundamentally change the relationship between banks and society. Wall Street still has a vice grip on our economy, and lawmakers still find it very difficult to stand up to bigwig financiers.

The real fight for our economy will involve future legislative battles with bankers. Winning those battles will require sweeping action by engaged citizens. The good news is, critical progressive mobilization is already happening. Public outcry helped fuel the fire for Senate reform. Rep. Barney Frank (D-MA), has said that the Wall Street reform bill he pushed through the House last year would have been much stronger in today’s atmosphere of outspoken economic unrest.

Focus on the Fed

So what’s good about the bill the Senate just passed? As Annie Lowrey explains for The Washington Independent, the Federal Reserve’s emergency lending programs will finally be subjected to public scrutiny.

The Fed served as the U.S. government’s chief bailout engine during the crisis. It injected trillions of dollars into the banking system without any oversight. We still don’t know who got the vast majority of that money, or what collateral the Fed accepted in return. There are all sorts of potential scandals, ranging from sweetheart deals the Fed cut with hedge funds to the trillions of dollars in loans to megabanks with no strings attached.

Of particular interest are the “Maiden Lane vehicles”—programs the Fed devised to purchase or guarantee assets from Bear Stearns and AIG. These were explicit bailouts for individual firms. We know almost nothing about the Bear Stearns bailout, and what little we do know about the AIG bailout is unsavory to say the least— big bonuses for AIG’s employees, with little or no effort to limit the impact on taxpayers.

Reconciliation

There are still a handful of important fights as the House and Senate iron out the differences between their respective versions of the bill. As I emphasize for AlterNet, a host of major issues are still on the table, including consumer protection rules and fixing the derivatives casino. These changes could be gutted entirely or dramatically strengthened during negotiations between the House and Senate.

The final bill will not dramatically alter Wall Street. As Roger Bybee explains for In These Times, the Democratic leadership has been trying to both establish meaningful reforms and simultaneously maintain its campaign finance relationship with megabanks. Republicans have almost universally attempted to block any reform altogether.

Regulators will get a handful of important new tools, including the authority to shut down complex banks on the verge of collapse, the ability to monitor derivatives and a have new set of powers to protect consumers. That’s all good, but we’ll still be living with too-big-to-fail behemoth banks that engage in reckless trading and exploit consumers.

Engaging activists

That means that the real business of fixing the financial system is still to come. And, as Christopher Hayes emphasizes for The Nation, that business is not going to be accomplished without serious, organized progressive activists putting pressure on political leaders to act in the public interest, rather than the interests of the corporate class.

When the country suffered a trauma that massively discredited the establishment rulers, the Democratic Party became the establishment. And progressive groups in DC, under stern White House orders not to cause trouble (don’t show up at his door! he’s a donor! we might nominate him for something!), descended into what one organizer calls “grotesque transactionalism” . . . . If we’re going to get reform on the scale we need, bank lobbyists and members of Congress alike have to be confronted with the terrifying thought that the system from which they profit might just be run over—that 700 angry protesters might show up on their lawn.

As Hayes details, Bank of America lobbyist Gregory Baer woke up last Sunday with exactly that– 700 protesters in his front yard. That kind of pressure gets results. It took Franklin Delano Roosevelt seven years to enact his New Deal financial reforms. Earlier in the 20th Century, it took more than a decade for public opinion to align itself with the corporate crackdowns pushed by Republican President Theodore Roosevelt. It’s reasonable to expect the fight for fair finance to take more than two years, and important to fight hard for it.

The minimum reforms are already clear. Essentially, we need to bring banking back to the model that persisted from the 1930s into the 1980s—an era with no serious financial crises or bailouts. Our current financial woes stem from the systematic dismantling and deregulation of this system over the past 30 years.

State-run banks?

But we also need to learn from more recent economic experiments. As Ellen Brown notes for Yes! Magazine, the state of North Dakota has been largely insulated from much of the fallout from the financial crisis of 2008. Part of the reason for the state’s relative stability lies in the fact that it operates its own bank.

North Dakota’s direct supervision of one institution among the hundreds of banks that operate in the state has helped insulate it from the credit storm on Wall Street. The state has its own engine of credit, and can keep funds flowing to businesses that need it, even in the middle of a crisis.

The prospect of state-run banking may seem radical, but it isn’t. It’s a practical proposal based on the established, real-life success of the Bank of North Dakota. As Brown notes, five other states have legislation pending that would create their very own banks—Massachusetts, Virginia, Washington, Illinois and Michigan, while Hawaii recently approved a study to determine the usefulness of a bank run by that state.

The financial reform bill the Senate just passed was a good start, but we’ve got a long way to go. We’re not going to get there without a committed community of progressive activists who demand that the economy serve society, not only entrenched corporate interests.

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.

 

 

Weekly Audit: Want Economic Justice? Then it's Time to Act

by Zach Carter, Media Consortium blogger

On Thursday, the U.S. Senate passed a financial reform package that includes a handful of important reforms, but it won’t fundamentally change the relationship between banks and society. Wall Street still has a vice grip on our economy, and lawmakers still find it very difficult to stand up to bigwig financiers.

The real fight for our economy will involve future legislative battles with bankers. Winning those battles will require sweeping action by engaged citizens. The good news is, critical progressive mobilization is already happening. Public outcry helped fuel the fire for Senate reform. Rep. Barney Frank (D-MA), has said that the Wall Street reform bill he pushed through the House last year would have been much stronger in today’s atmosphere of outspoken economic unrest.

Focus on the Fed

So what’s good about the bill the Senate just passed? As Annie Lowrey explains for The Washington Independent, the Federal Reserve’s emergency lending programs will finally be subjected to public scrutiny.

The Fed served as the U.S. government’s chief bailout engine during the crisis. It injected trillions of dollars into the banking system without any oversight. We still don’t know who got the vast majority of that money, or what collateral the Fed accepted in return. There are all sorts of potential scandals, ranging from sweetheart deals the Fed cut with hedge funds to the trillions of dollars in loans to megabanks with no strings attached.

Of particular interest are the “Maiden Lane vehicles”—programs the Fed devised to purchase or guarantee assets from Bear Stearns and AIG. These were explicit bailouts for individual firms. We know almost nothing about the Bear Stearns bailout, and what little we do know about the AIG bailout is unsavory to say the least— big bonuses for AIG’s employees, with little or no effort to limit the impact on taxpayers.

Reconciliation

There are still a handful of important fights as the House and Senate iron out the differences between their respective versions of the bill. As I emphasize for AlterNet, a host of major issues are still on the table, including consumer protection rules and fixing the derivatives casino. These changes could be gutted entirely or dramatically strengthened during negotiations between the House and Senate.

The final bill will not dramatically alter Wall Street. As Roger Bybee explains for In These Times, the Democratic leadership has been trying to both establish meaningful reforms and simultaneously maintain its campaign finance relationship with megabanks. Republicans have almost universally attempted to block any reform altogether.

Regulators will get a handful of important new tools, including the authority to shut down complex banks on the verge of collapse, the ability to monitor derivatives and a have new set of powers to protect consumers. That’s all good, but we’ll still be living with too-big-to-fail behemoth banks that engage in reckless trading and exploit consumers.

Engaging activists

That means that the real business of fixing the financial system is still to come. And, as Christopher Hayes emphasizes for The Nation, that business is not going to be accomplished without serious, organized progressive activists putting pressure on political leaders to act in the public interest, rather than the interests of the corporate class.

When the country suffered a trauma that massively discredited the establishment rulers, the Democratic Party became the establishment. And progressive groups in DC, under stern White House orders not to cause trouble (don’t show up at his door! he’s a donor! we might nominate him for something!), descended into what one organizer calls “grotesque transactionalism” . . . . If we’re going to get reform on the scale we need, bank lobbyists and members of Congress alike have to be confronted with the terrifying thought that the system from which they profit might just be run over—that 700 angry protesters might show up on their lawn.

As Hayes details, Bank of America lobbyist Gregory Baer woke up last Sunday with exactly that– 700 protesters in his front yard. That kind of pressure gets results. It took Franklin Delano Roosevelt seven years to enact his New Deal financial reforms. Earlier in the 20th Century, it took more than a decade for public opinion to align itself with the corporate crackdowns pushed by Republican President Theodore Roosevelt. It’s reasonable to expect the fight for fair finance to take more than two years, and important to fight hard for it.

The minimum reforms are already clear. Essentially, we need to bring banking back to the model that persisted from the 1930s into the 1980s—an era with no serious financial crises or bailouts. Our current financial woes stem from the systematic dismantling and deregulation of this system over the past 30 years.

State-run banks?

But we also need to learn from more recent economic experiments. As Ellen Brown notes for Yes! Magazine, the state of North Dakota has been largely insulated from much of the fallout from the financial crisis of 2008. Part of the reason for the state’s relative stability lies in the fact that it operates its own bank.

North Dakota’s direct supervision of one institution among the hundreds of banks that operate in the state has helped insulate it from the credit storm on Wall Street. The state has its own engine of credit, and can keep funds flowing to businesses that need it, even in the middle of a crisis.

The prospect of state-run banking may seem radical, but it isn’t. It’s a practical proposal based on the established, real-life success of the Bank of North Dakota. As Brown notes, five other states have legislation pending that would create their very own banks—Massachusetts, Virginia, Washington, Illinois and Michigan, while Hawaii recently approved a study to determine the usefulness of a bank run by that state.

The financial reform bill the Senate just passed was a good start, but we’ve got a long way to go. We’re not going to get there without a committed community of progressive activists who demand that the economy serve society, not only entrenched corporate interests.

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.

 

 

The Federal Reserve Raises Its Discount Rate

The Federal Reserve, the Central Bank of the United States, has raised its discount rate by a quarter of a percentage point, to 0.75 percent from 0.50 percent, effective tomorrow Friday, February 19, 2010. The discount rate is the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank's lending facility - the discount window. From the Federal Reserve's press release:

The Federal Reserve Board on Thursday announced that in light of continued improvement in financial market conditions it had unanimously approved several modifications to the terms of its discount window lending programs.

Like the closure of a number of extraordinary credit programs earlier this month, these changes are intended as a further normalization of the Federal Reserve's lending facilities. The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy, which remains about as it was at the January meeting of the Federal Open Market Committee (FOMC). At that meeting, the Committee left its target range for the federal funds rate at 0 to 1/4 percent and said it anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

The changes to the discount window facilities include Board approval of requests by the boards of directors of the 12 Federal Reserve Banks to increase the primary credit rate (generally referred to as the discount rate) from 1/2 percent to 3/4 percent. This action is effective on February 19.

There's more...

Weekly Audit: Time to Audit the Fed

By Zach Carter, Media Consortium Blogger

Two key lawmakers on the House Financial Services Committee, Reps. Alan Grayson (D-FL) and Ron Paul (R-TX), are pushing to authorize a full, comprehensive audit of the Federal Reserve. The plan has sparked fury from both the Fed and the corporate banking industry, but the proposal is so appealing that the controversy is almost laughable.

The Federal Reserve is one of the most powerful economic institutions in the world, but most of its operations are conducted in total secrecy. The Fed's rescue activities have dwarfed the $700 billion Troubled Asset Relief Program, but without any public accounting. Some of these efforts may have been entirely appropriate, but we don't even know who the Fed is helping. That fact is a major barrier to establishing effective and fair economic policy.

As Glenn Greenwald observes for Salon:

"The Fed is a typical Washington institution that operates un-democratically and in virtually total secrecy, and a Congressionally-mandated audit that they (and much of the DC establishment) desperately oppose would be a serious step towards changing the dynamic of how things function. At the very least, it would provide an important template for defeating the interests which, in Washington, almost never lose."

Under the Grayson-Paul plan, which is offered as an amendment to the Financial Stability Improvement Act of 2009, the Government Accountability Office would be given the authority to audit all of the Federal Reserve's activities, just as it can audit other public programs and institutions.

Last week, the House Financial Services Committee approved the audit-the-fed bill, despite opposition from panel Chairman Barney Frank (D-MA), who tried to gut the plan. Even on the Financial Services Committee, where the banks concentrate their campaign contributions, Grayson was able to convince 14 other Democrats to stand up to the financial establishment.

The vote of approval scarcely registered on mainstream media's radar, and even then, the Grayson-Paul legislation was portrayed as an assault on the Fed's "political independence." As Dean Baker notes for Talking Points Memo, it's hard to see how a simple, public accounting can be construed as a political hit on the Fed's policy-making.

By setting interest rates, the Fed has enormous power to do almost anything under the economic sun, from fueling quick growth to destroying jobs. All of these powers have useful functions under the right circumstances, and we really don't want Congress to make decisions about the economy based on the interests of powerful lobby groups. The Grayson-Paul bill wouldn't do anything of the sort. As John Nichols explains for The Nation, audits of sensitive economic policy decisions would be subject to a six-month lag before they could be publicly released. If the Fed needs to act fast, Congress won't be able to get in its way. The public will eventually know how its own money is being spent, however, and learn how a public institution is conducting itself.

"In other words, this is about simple transparency, which everyone should favor," Nichols writes.

The White House and the Congressional Democratic leadership need to support a full and comprehensive audit of the Federal Reserve. It's an issue of basic democratic accountability. There is no good reason why economic policy should be conducted in secret.

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.

There's more...

The Best Way to Cheat - Continued

On August 13, I posted the "The Best Way to Cheat"
[http://www.mydd.com/hotlist/add/2007/8/1 3/133817/215/section//_all_].  Within days, I found two items that seem to me to further support my points.

There's more...

Diaries

Advertise Blogads