Fill In the Blanks

A New Yorker story published online this morning describes yet another example of a financial debacle abetted by government corruption. As I read the first paragraph, it struck me that the basic plot is always the same – all you need to do is fill in the blanks:

In the spring of _______, as the reelection campaign of ______ was gathering momentum, a group of prominent _____ businessmen met for breakfast at the ________ to see the candidate. Among them was _____, the chief executive officer of _____, a fast and freewheeling financial institution that had brought together some of the most colorful and politically well-connected _____ in the country….

Last week’s final report of the Financial Crisis Inquiry Commission explains in intricate detail why and how the U.S. economy imploded in 2008, but isolates no single, primary cause of the crisis. The Commission says that the crisis was “avoidable” and notes that “widespread failures in financial regulation and supervision proved devastating to the stability of the nation’s financial markets,” but this is just one Commission conclusion of many. As Joe Nocera points out, the report never gets to the bottom line.

Our report, “Sold Out: How Wall Street and Washington Betrayed America,” published in March 2009, got right to the bottom line in its title. We didn't need subpoena power or a large staff to figure out what happened, just the willingness to say what everybody in the Wall Street/Washington axis of power already knew. Between 1998 and 2008, Wall Street invested $5 billion in Washington, a combination of money for lobbying and campaign contributions that won deregulation and other policy decisions that enabled the financial industry to do as it pleased. The ensuing orgy of unbridled speculation, based on "derivatives" and other financial schemes that even the CEOs themselves didn't understand, came to a halt when the housing bubble burst and Wall Street couldn't even figure out the value of the investments it held. The financial industry panicked, threatened to shut down the system, and got the government to undertake the mother of all bailouts - trillions of dollars in loans, tax breaks and other goodies.

In short: the power of money poisoned our policies and our politics, with dire consequences for all of us who don't enjoy the special favors that only vast quantities of money can buy.

The Commission, created and appointed by Congress and composed of members of the political elite, could not possibly issue that indictment. Which is why the discussion of the bailout – the most obvious example of the special status of the privileged in our country – is a measly five pages out of 410.

The American public deserves better. In other man-made national disasters, like the explosion of the Challenger space shuttle 25 years ago, experts in the field – astrophysicists, geologists, academics – were asked to undertake an independent investigation. Their reports secured the confidence of the public, and led to remedial actions. NASA was not allowed to investigate itself, and lo and behold, it turned out that the culture at NASA was ultimately responsible for a design defect in the rocket.

Because it retreats from the fundamental truths, the Commission's report does nothing to help us come to grips with the root cause of the financial crisis: the corruption of our democracy by special interest money.  I know from more than thirty years of fighting for consumer rights – particularly in the insurance marketplace – that industry lobbyists and unlimited money to politicians almost inevitably kill  legislation that would help average people. Even the feeble, loophole-ridden campaign laws that limited how much big corporations could spend in elections are in jeopardy, thanks to the United States Supreme Court’s decision last year in the Citizens United case, which decreed that corporations have the same First Amendment rights as human beings. Here in California, the voters have the ability to go around a paralyzed legislature and put matters on the ballot for a direct vote of the people, but even this populist process is increasingly abused by special interests that want to block consumers from having their day in court, or by a single company like Mercury Insurance, who thought it could fool the voters into permitting auto insurance overcharging.

Naming a thing for what it is aids understanding, which leads to action and ultimately recovery. Absent the cleansing force of honesty, we remain rooted in fear for our kids, for America’s future. Indeed, there is something deeply foreboding about the country’s degraded democracy and disabled economy. Some of the old clichés are becoming a sickening reality. We used to idly wonder, are we Rome, a corrupt empire in the process of collapse? A thoughtful, almost poetic book by that name, written by Cullen Murphy, suggests we are.

The term “third world” was once a sneer, connoting abject poverty, corruption, gross disparities between rich and poor, the absence of government services, a state controlled by a cabal of self-perpetuating leaders. Now consider the statistics on post-collapse America, which Arianna Huffington marshals in her latest book, "Third World America."

This would be a good point to fill in the blanks in the piece I excerpted above from the New Yorker story. The missing words are: 2009, President Hamid Karzai, Afghan, presidential palace, Khalil Ferozi, Kabul Bank, Afghans. Yesterday’s New York Times reported that fraud and mismanagement at the largest bank in Afghanistan has resulted in $900 million in losses, potentially triggering a financial debacle. Kabul Bank is “too big to fail,” according to Western diplomats quoted by the Times. It's the same story everywhere, and thus it would hardly come as a surprise if U.S. taxpayers ended up funding the bailout of Kabul Bank.

Congress / Financial Crisis Inquiry Commission / Harvey Column / Too Big To Fail - 01/31/2011

King's Longest March

Everybody wants to claim a piece of the spirit of Martin Luther King in support of his or her cause. A Pentagon official even had the nerve to say King, who championed nonviolence, would have supported U.S. wars in Afghanistan.

That’s an especially dubious assertion given that the civil rights leader became an increasingly vocal opponent of the Vietnam war, in a move that cost him some support.

What would King make of the U.S. in 2011?

We don’t need to guess. We have the record of his words and deeds, especially in his final year.

As early as 1957, King was highlighting the disparities between rich and poor, In a speech celebrating the 25th anniversary of the Highlander Center, a grass-roots organizing center in Tennessee, he said: “I never intend to adjust myself to the tragic inequalities of an economic system which takes necessities from the masses to give luxuries to the classes.”

By 1963 King was moving his fight for strictly civil rights for minorities, like voting and equal access to public facilities, toward a broader struggle for economic rights for the disadvantaged and least powerful, recognizing that civil rights without economic rights couldn’t guarantee the opportunity and justice for all promised that was key to the great democratic experiment “What good is to it have the right to be able to sit at a lunch counter,” he asked, “if you can’t afford a hamburger.”

He gave the “I have a dream” speech that galvanized a nation at a march on Washington that demanded both jobs and freedom.

But it was in the last year of his life that his focus on economic injustice became most acute and profound.

He put in motion an effort to organize poor people, not just to focus on their plight, but also so they could fight for better jobs and decent housing for themselves.

King certainly would have celebrated the historic election of the nation’s first black president, and Obama began his presidency by evoking King’s spirit.

But the civil rights leader- he would have recognized that that election was not a resting place amid the economic suffering of so many.

He would not have abided the bailouts and tax cuts that allowed bankers and the wealthiest to prosper while those without access to the backrooms of power suffer. He would not have abided the widening gulf between the wealthiest and the poorest Americans, knowing the dire consequences of that division, not just for the poor and the middle class but also for the whole country.

He also would not have been surprised how tough it is to fight the entrenched power of corporations brought back from the dead by compliant politicians.

“It’s much easier to integrate a lunch counter than it is to guarantee a livable income and a good solid job,” King said in April 1967 at Stanford University in a speech entitled `The Other America' that rings as sadly true today as it did more than 40 years ago, with its reference to "work-starved men searching for jobs that don't exist".

“It's much easier to guarantee the right to vote than it is to guarantee the right to live in sanitary, decent housing conditions," King said at Stanford. "It is much easier to integrate a public park than it is to make genuine, quality, integrated education a reality. And so today we are struggling for something which says we demand genuine equality.”

Tomorrow: King in Memphis

Martin Column / President Barack Obama - 01/17/2011

Around the Web: Typos and Tired Arguments

Did a typo or a technical glitch cause “a moment of uncontrolled selling” aggravating an already skittish stock market into a full-blown plunge? The old gray lady diplomatically labels it “an errant trade.”  But CNBC calls it a typo.

Meanwhile the fight over financial reform goes on. If some of it sounds hauntingly familiar, that’s because…it is.

Unearthing old arguments against corporate reforms of the past, columnist Michael Hiltzik finds opponents trotted out the same lame doomsday scenarios 75 years ago they’re offering today.

In 1933, writes Hiltzik in the Los Angeles Times, the American Bankers Association urged members to “fight…to the last ditch” an “unsound, unscientific, unjust and dangerous” proposal Congress was considering.

What kind of dangerous radical thing could those congressional crazies have been up to?

Federal deposit insurance.

Just like financial reforms of the 1930s, most corporate reforms, Hiltzik reminds us, almost always turn out to be positive for their industries.

At Baseline Scenario, James Kwak does a good job dismantling the arguments against auditing the Fed, the proposal which appears to have been the subject of a Senate compromise Thursday that would allow a substantial audit to go forward.

The Obama administration has been fighting the proposed audit arguing that it will “politicize” the Fed and that the ordinary flawed mortals who inhabit Congress don’t have the intellectual chops to oversee the Fed’s monetary titans. “The idea that monetary policy is too technical for Congress to understand, and therefore should be done in secret, I don’t buy,” Kwak writes. “So is, say, climate policy. That’s a complex scientific topic, of crucial importance to the future of our nation (and the human race), that is clearly beyond the ability of Congress to understand and discuss responsibly. But we don’t exempt the EPA from Congressional oversight.”

Around the Web - 05/07/2010

Less Kabuki, More Reform

Does the president get it yet on financial reform?

Or is his tougher stance toward the bankers part of a kabuki performed for the public while real reform is compromised away backstage?

The politics around the battle for a Consumer Financial Protection Agency are thick with intrigue and shifting positions.

A separate agency is a crucial aspect of any reform because the present regulators have done such a dismal job of protecting consumers’ interests.

We have every right to be suspicious of the president and the Democrats, based on their timidity in fighting for stronger regulation and holding accountable those responsible for the crisis.

The latest cause for doubts stems from the unsavory spectacle of Democrats and Republicans falling over themselves to reassure Wall Street that they are the bankers’ best bet to represent the interests of the financial industry.

Meanwhile, the president appears be jawboning the key Senate author of reform, Chris Dodd. A long-time recipient of Wall Street largesse, Dodd was facing a tough reelection campaign, based on some of his more unsavory dealings with Wall Street. In the midst of that campaign last November, he came out with a tough reform proposal, including an independent Consumer Financial Protection Agency.

But as his campaign looked increasingly hopeless, Dodd decided to retire. Since then he’s been signaling that he wants to back off the independent consumer agency.  President Obama met with Dodd last month and insisted that the independent agency is “non-negotiable.”

President Obama has his own changing political calculations. He originally supported a milder version of bank reform passed by the House. After the Democrats lost Ted Kennedy’s Massachusetts Senate seat several weeks ago, the president all of a sudden decided to haul out his lone financial adviser who has advocated breaking up big banks, former Fed chief Paul Volcker. (Previously Obama had been ignoring him, letting a cast of Wall Street insiders run his handling of the banking crisis.)

Obama, with Volcker by his side, voiced support for breaking up the largest big banks as well as placing some new limits for some of the banks’ riskier activities.

Earlier this week at a Senate hearing, Dodd aimed unusual criticism at the president, questioning the timing of his announcement, labeling the president’s embrace of Volcker’s ideas “transparently political.”

Dodd didn’t stop there: he suggested that the president’s proposals to get tough on the big banks threatened the process of crafting a reform proposal that would get bipartisan support.

Key Republicans have already indicated what that would mean – no independent consumer financial protection agency, for one thing.

The Democrats are caught: The bankers who fund their campaigns are demanding watered-down reform that will ensure business as usual. Angry voters are demanding robust regulation and accountability.

The president has to demonstrate that his embrace of Volcker’s ideas isn’t just a gimmick. He’s got to flesh his proposals out with details and fight for them in public and not compromise them away in the back rooms.

Contact the president and let him know what you think. Let your senator know, too, that you’re tired of political theater. It’s past time for real reform.

Consumer Financial Protection Agency / Martin Column / President Barack Obama - 02/04/2010