To what extent do the banks own Congress? Paul Blumenthal reports at Huffpo:
When Washington puts policy on the auction block, bankers are consistently the highest bidders. The industry’s most striking victory has been the watering down of post-financial crisis reforms, to the point that banks are now bigger than ever and the bonuses keep flowing. But Wall Street’s campaign spending and lobbying power is so intimidating that banks have repeatedly stuck the public with the tab for their losses and no one in Washington stops them.
Why hasn’t the government done something about outrageous ATM fees? Or credit card interest rates up to 30 percent? Bankers’ clout is such that common-sense pro-consumer legislation is presumptively dead on arrival at Capitol Hill if it threatens banks’ revenue streams.
Prominent thinkers and politicians have often had harsh words about banks and bankers. Here is a sampling:
-“Whoever controls the volume of money in any country is absolute master of all industry and commerce.”
James A. Garfield
-“I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”
Thomas Jefferson (1743-1826), Letter to the Secretary of the Treasury Albert Gallatin (1802)
-“Thus, our national circulating medium is now at the mercy of loan transactions of banks, which lend, not money, but promises to supply money they do not possess.” Irving Fisher
-“Where would we be if we had I.O.U.’s scrip and certificates floating all around the country?” Instead he decided to “issue currency against the sound assets of the banks. [As opposed to issuing currency against gold.] The Federal Reserve Act lets us print all we’ll need. And it won’t frighten the people. It won’t look like stage money. It’ll be money that looks like real money.” [Emphasis added.] (Source: ‘Closed for the Holiday: The Bank Holiday of 1933’, p20 – Federal Reserve Bank of Boston) Treasury Secretary Woodin, 3/7/33
-“Banks have done more injury to the religion, morality, tranquility, prosperity, and even wealth of the nation than they can have done or ever will do good.”
-“When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes. Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.”
-“With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people.” Friedrich A. Hayek (1899-1992) Austrian Economist, Author and 1974 Nobel Prize-Winner for Economics
-“There can be no real individual freedom in the presence of economic insecurity.”
Chester Bowles (1901-1986)
-“You are a den of Vipers! I intend to rout you out, and by the Eternal God I will rout you out. If the people only understood the rank injustice of our money and banking system, there would be a revolution before morning.”
-“The country is governed for the richest, for the corporations, the bankers, the land speculators, and for the exploiters of labor.”
-“I hate banks. They do nothing positive for anybody except take care of themselves. They’re first in with their fees and first out when there’s trouble.”
-“Paper money eventually returns to its intrinsic value —- zero.”
[More . . . ]
In an impassioned speech this morning, Sen. Ted Kaufman (D-Del.) called for the break-up of megabanks and a firmer separation between Main Street banking and Wall Street trading. At the above link video excerpts are available.
OK, now we need 99 more senators and hundreds of representatives to get on board.
At The New Republic, Simon Johnson and Peter Boone offer some eye-popping numbers to illustrate how big the big banks have gotten:
As a result of the crisis and various government rescue efforts, the largest six banks in our economy now have total assets in excess of 63 percent of GDP (based on the latest available data). This is a significant increase from even 2006, when the same banks’ assets were around 55 percent of GDP, and a complete transformation compared with the situation in the United States just 15 years ago, when the six largest banks had combined assets of only around 17 percent of GDP. If the status quo persists, we are set up for another round of the boom-bailout-bust cycle that the head of financial stability at the Bank of England now terms a “doom loop.”
From the same article, here’s more numbers to illustrate how big is big:
The big four have half of the market for mortgages and two-thirds of the market for credit cards. Five banks have over 95 percent of the market for over-the-counter derivatives. Three U.S. banks have over 40 percent of the global market for stock underwriting. This degree of market power brings with it not just antitrust concerns, which this administration has declined to act on, and a huge amount of economic risk–but great political influence as well. The banks are going to use that power to block legislation containing any meaningful financial reform. And they are likely to succeed.
Can we simply regulate banks? More bad news:
The idea that we can simply regulate huge banks more effectively assumes that regulators will have the incentive to do so, despite everything we know about regulatory capture and political constraints on regulation.
In their conclusion, the authors are not optimistic that the Obama White House has the will to push meaningful reform.
Elizabeth Warren: The banks have lobbyists in Washington in numbers that I’ve never before seen . . .
Elizabeth Warren is still fighting a good fight, but Congress continues to side with the big banks, not with consumers. Our representatives, who are inundated with propaganda and money from bank lobbyists, continue to consider the banks to be their clients, not consumers. Warren gives the sad details in this interview with Bill Maher.
The big banks are taking the position that they have paid back most of money they received from taxpayers, so that they can go back to business as usual. Think Progress reminds us that paying back the TARP funds was the tip of the iceberg, and that the big banks are heavily in debt to taxpayers:
While most banks have already paid back their portions of TARP, as White House economic adviser Austan Goolsbee told CNBC, the government has not charged the banks for the huge emergency guarantees provided to them by the FDIC, nor for allowing investment banks to convert to deposit banks, which gave them access to loans from the Federal Reserve. Moreover, the entire sector has benefited from taxpayer help. The government has provided financial firms with trillions of dollars in low-interest loans and outright equity purchases through programs like the Federal Reserve’s Discount Window and loan guarantees, and they also benefited from the bailout of AIG. TARP represents only a small portion of the total support for the financial sector, so even firms that did not receive funds under the program — or have already paid back their portion — owe taxpayers.
This Think Progress post is link rich, in case you’d like to dig in deeper.
Princeton economist Alan S. Blinder recently wrote a notable op-ed at the Wall Street Journal. It was notable because Blinder’s theme runs counter to the mantra of the many free market fundamentalists who got us into the big mess we are in. In his hard-hitting piece, Blinder argues that greed is not necessarily good:
When economists first heard Gekko’s now-famous dictum, “Greed is good,” they thought it a crude expression of Adam Smith’s “Invisible Hand”—which is one of history’s great ideas. But in Smith’s vision, greed is socially beneficial only when properly harnessed and channeled. The necessary conditions include, among other things: appropriate incentives (for risk taking, etc.), effective competition, safeguards against exploitation of what economists call “asymmetric information” (as when a deceitful seller unloads junk on an unsuspecting buyer), regulators to enforce the rules and keep participants honest, and—when relevant—protection of taxpayers against pilferage or malfeasance by others. When these conditions fail to hold, greed is not good.
Blinder’s article is not optimistic that we will be able to seize the moment by “slamming the door on the lobbyists” and enacting strong financial reform.
What would you think about the Federal Reserve Bank of New York telling AIG to intentionally withheld from public scrutiny that AIG was paying 100 cents on the dollar for credit default swaps at the same time that AIG was crying for a bailout from the public, thereby hiding from the public that the public was functionally bailing out Goldman Sachs and other large banks? What would you think about the fact that Tim Geithner headed the New York Federal Reserve when this was going on? Eliot Spitzer, William K. Black and Frank Partnoy sum up the issue:
Today, a Bloomberg story revealed that under Timothy Geithner’s leadership, the Federal Reserve Bank of New York told AIG to withhold details from the public about its payments to banks during the crisis. This information was discovered when emails between the company and the Fed were requested by representative Darrell Issa, ranking member of the House Oversight and Government Reform Committee.
Who owns AIG? The taxpayers own 80% of it. Therefore, AIG should release the emails. Who can and should make this decision?
The taxpayer’s stake in AIG is held by the A.I.G. Credit Facility Trust, whose three trustees are Jill M. Considine, a former chairman of the Depository Trust Company and a former director of the Federal Reserve Bank of New York; Chester B. Feldberg, a former New York Fed official who was chairman of Barclays Americas from 2000 to 2008; and Douglas L. Foshee, chief executive of the El Paso Corporation and chairman of the Houston branch of the Federal Reserve Bank of Dallas. We call on these three officials (interestingly all former Fed officials) to immediately release the documents we request. The value of these documents, if it were ever in doubt, was certainly proved by today’s revelations.
Release the emails.
See also, this earlier post on a NYT op-ed by Spitzer, Black and Partnoy.