Three of my uncles worked for banks. They were Irish, or Scots-Irish, and their parents were cops, postal workers, and telephone operators. They were Irishmen who wanted to join the WASP world, and banks were their points of entry. All three made vice-president of their respective banks, but one was later fired, and the other two were forced to retire for health reasons.
They worked through the sixties and into the seventies in local Chicago and suburban Chicago banks. The banks weren’t small for their time, but they look like pygmies from the vantage point of today. Local banks were protected, and indeed my uncles were protected by Illinois law that until 1985 forbade “branch banking,” whereby a bank could operate out of multiple locations. The downtown, money-center banks stalked the local banks relentless, buying their shares privately, seeking confederates on their boards, and linking them to big loan syndicates. But the big banks couldn’t take over the local banks, and the local banks continued on servicing their local business communities and writing local mortgages that remained part of their asset portfolio. The local banks were dull, stable, and profitable.
Throughout the sixties and seventies, my uncles would warn me that branch banking was coming. The downtown Chicago money-center banks with their Fortune 500 clients and political influence, they said, were votes away from getting their way in state legislature. The spectacular failure of the Continental Illinois Bank, then the country’s 7th largest bank, in 1984, scared the state political class into granting limited branch banking in 1985. By 1993, state law provided that a bank could operate at an unlimited number of locations statewide. Federal law in 1994 opened up the country to unlimited branch banking. My uncles’ banks became branches of money-center and soon national banks, and each uncle left his bank, each in his own unhappy way.
Fifteen years later, America’s banks had become so few and so big that the government dared not let them fail.
They became so big, in fact, that they combined to “grow” the financial sector with investment bankers and financiers, or speculators in you prefer, into a business that generated 41% of all corporate profits over the course of the current decade. The message was clear: Never mind General Motors. What was good for J.P. Morgan was good for America.
I will not present here again how they have brought the American economy down, such that we now fear with reason another great depression. Nor will I present arguments about why the new Geithner plan is unlikely to help us out of the ever-deepening economic hole into which we are falling. The list of outstanding economists who think it will be a failure grows daily. You can read the detailed criticism of the plan on the net by Paul Krugman, Joseph Stiglitz, Jeffrey Sachs, Willem Buiter, and Simon Johnson, among others.
Rather the issue I raise here is one of power, and finally politics. President Obama may have two wars to fight abroad, but he also has one at home. The banks, though wounded, have begun to push back. Theirs is an undeclared war for the right to do as they please, and they find comfort in the fact that neither the Federal Reserve nor the Administration will let them fail.
Thus far, it serves them that no war has been officially declared. In trying to give TARP money back, for instance, several money-center banks are seeking to slip the noose of state control. They want a free hand running their banks, and they want to be able to fight greater regulation openly and without the pressure that Treasury could exert in “curbing their enthusiasm” as their major creditor.
Group advantage is at stake too. They gave out $18 billion in personal bonuses while the markets crashed, and the products that the big banks and investment banks sold bankrupted the buyers and threw the world financial system into panic. Banks in this case didn’t have “tin ears.” That was power you overheard swearing.
Now, the big banks have begun heavy lobbying to prevent or at least blunt significant re-regulation of their business. So too have their customers, the investment banks, private investment and hedge funds. A March 5 report by the Essential Education and Consumer Education Foundation notes that from 1998-2008, Wall Street investment firms, commercial banks, hedge funds, real estate companies and insurance conglomerates made $1.725 billion in political contributions and spent another $3.4 billion on lobbyists. Nearly 3,000 officially registered federal lobbyists in 2007 worked for the industry. (http://www.wallstreetwatch.org/soldoutreport.htm)
The 18 big TARP recipients, according to Dave Johnson in the March 19 Huffington Post, spent $114 million on lobbying last year, $15 million of which was spent after the TARRP funds were disbursed.
The fight has just begun, as Edmund Andrews of the New York Times reported on March 28:
“…industry groups are already mobilizing to block restrictions they oppose and win new protections they have wanted for years. Even though Mr. Geithner carefully avoided specific details, laying out mostly broad principles for overhauling the system, financial industry groups are identifying issues they plan to pursue and lining up well-connected lobbyists and publicists to help make their cases.”
Though Treasury Secretary Geithner yesterday (April 5) announced he will remove the bosses of badly performing banks if they come under his direct supervision, and though he has called for more regulation of banks and the extension of regulation over the affairs of private wealth, non-bank financial entities, and hedge funds, I get the deep, disheartening sense that he and the President mistake the war they are in as an exercise in political mediation or at most a political skirmish for policy advantage. If war remains undeclared, or if the Administration tries to fight the banks by riding the tiger of popular discontent with bankers’ kleptocratic ways, rather than declaring and fighting an open war in the name of economic democracy, then even Barney Frank can’t save them from the Congressional battles of attrition whereby the banks will eventually get their way.
A complaisant Congress and 3000 lobbyists acting as invisible weavers of phantom regulatory laws will be more than a match for a President who refuses to declare war and fight. Even as Secretary Geithner calls for tougher regulation, the United States in London at the G20 summit resisted new binding international rules on banking and finance.
And the President prattled on once again (see my last column for other instance) at his April 3 press conference about the virtues of the rich:
“We – I strongly belief in a free market system, and as I – as I think people understand in America, at least; people don’t resent the rich; they want to be rich. And that’s good. But we want to make sure there’s a mechanism in place that holds people accountable and produces results. Okay?”
No, not okay, Mr. President. America’s bankers are the custodians of the riches of America’s wealthiest families. After a quarter century of financial conquest, the bankers themselves form a large faction of America’s wealthiest, and in a way are also now the brains of the rich.
But remember this: Though really, really wealthy Americans count for no more than about 3 million people, they owned in 2001 half of the stock market and 64% of the bond market. Even the bankers and financial managers who do not count themselves among the rich work for them. So, Mr. President, as the bankers claw back the lost capital their follies have cost them, you are in danger of facilitating the greatest transfer of the national wealth back into the hands of the wealthy since the Reagan “revolution.”
Mr. Obama, you cannot win if you do not fight. You cannot win if you do not declare war and mobilize the American people to support economic justice in this case.
Mr. Obama, Frank Rich in the March 22 New York Times asked if your “Katrina” moment with the uproar of anger over bankers’ bonuses had arrived. You are currently outrunning that wave, it seems to me. But should you not take on the banks now and transform them into public utilities that support economic growth and democracy, the subsequent economic failure creating by doing too little will create a political crisis that will sweep you and your Administration away. Your defeat will leave the American people with more difficult and dangerous prospects following on.