Let's Hope The U.S. Economy Is Also Too Big To Fail-- Greedy, Selfish Banksters Are Surely Testing It

God only knows what evil lurks in the unconscious of Wall Street

Sometimes days-- even weeks-- go by without the economic and financial horror stories that have disrupted so many lives and plunged the U.S. into the worst economy since Bush's presidential antecedents-- Harding, Coolidge and Hoover-- ushered this country into the Great Depression. The media hasn't just failed to investigate why Bush chose to follow their model but has frequently just cut out coverage of the examples altogether. Today's NY Times, though, has two, Julie Cresell's front page story on how vulture capitalists and other financial predators profited from the Bush economic model and a very similar piece by David Carr in the Media and Advertising section, Of Layoffs, Bankruptcy and Bonuses. Yesterday on NPR I listened to a former financial sector worker telling the radio audience that he never believed warnings that people on Wall Street were inherently evil-- until he saw it himself. That fact that inherently evil-- at least if overarching greed and avarice are to be considered components of Evil-- people control the U.S. Senate, having purchased its members with over $2.2 billion in "contributions" since 1990 (not to mention another $3.7 billion in "lobbying" since 1998).

In a backdrop of conservative ideology run amuck-- income disparity between the top 1% and the "bottom" 90% is staggering and the banksters are off and running as if Bush were still in the White House, re-remics being their latest ploy to shear the unsuspecting sheep-- populists and progressives in the House want to look at their initial failure in reining in the banksters since Bush and his venal regime were supposedly flushed down history's toilet. (Yesterday Alan Greenspan, king of the Golden Age of private-- unregulated-- equity-- oozed up to the surface again, babbling on ABC's This Week about how things could have been worse.)

On Thursday the House will begin debating credit card rip-offs again. A friendly congressman on the House Financial Services Committee spoke with me off the record yesterday and told me that by giving the credit card companies a 6-month grace period as part of the last batch of legislation they passed, they gave them license to steal for half a year and that the companies were-- and are-- for the most part, playing a very bad faith game, doing everything Congress asked them not to do, from raising rates on customers with perfect credit to raising rates retroactively. I know if he could, this friendly congressman would have the CEOs all arrested Thursday and on trial soon after. If he were a judge...

Anyway, there's no congressional mandate for the kinds of legislation the friendly congressman would like to see passed. The Financial Sector has spread around far too many bribes for that. Last week former New York Governor Eliot Spitzer, someone who as Attorney General of that state learned a little about how Wall Street operates before they were able to deep-six his political career, asked a crucial question the House should be looking into: Why don't any of the Obama administration's financial reforms help middle-class Americans?

Could it be because they're still following the advice of Wall Street itself-- not just Greenspan but equally inherently evil Wall Street characters like Larry Summers, Tim Geithner and Rahm Emanuel-- and wasting all our resources bailing out banksters instead of throwing them in prison? Spitzer points out 2 of Obama's biggest mistakes in sticking with the Bush economic agenda:

First, the administration failed to go to the mat to give judges the power to reform mortgages in the bankruptcy context. The administration barely winced as the Senate caved to the banks on this critical issue, risking no political capital to protect one of the few reforms that could have totally transformed the mortgage crisis. As the foreclosure wave continues, and as adjustable-rate mortgages hit reset points that are going to cause havoc for millions of additional families, this failure of political leadership by the administration stands as one of the early warning signs that things were amiss.

The second act is the recent-- equally difficult to understand-- concession to the banks, allowing them not to be required to offer what are called "plain vanilla" mortgages and other products to consumers. These products are simpler, more understandable, less ridden with fees, and less prone to long-term risk than most of what banks try to sell consumers on a regular basis. These are the very products consumers need.

Trillions of dollars of taxpayer infusions-- direct cash, loan guarantees, capital purchases, policies to keep banks' cost of capital at virtually zero-- have kept the banks afloat. It is amazing that the administration didn't leverage these infusions to negotiate these two simple policies that would have made banking more sensible for the middle-class Americans whose tax dollars have bailed out the banks.

The administration's failure on these two policies is symptomatic of its larger failure of vision when it comes to banking reform. The administration has spent more time worried about the musical chairs of regulatory jurisdiction than it has asking fundamental questions about what banks should be doing, what we should expect in return for the vast sums we have invested in the banks, and how discomforting it is that the banks-- in an effort to forestall these very questions-- are already trying to assert that things have reverted to normal. It's worth recalling that the greatest impact of the New Deal was not the money spent on particular programs but, rather, the fundamental restructuring of the banking and securities sector that President Roosevelt imposed over the objections of business leaders.

But on Thursday the House Financial Services Committee isn't taking up anything quite so grand and definitive. Instead they'll start looking at a bill introduced by progressives Peter Welch (D-VT) and Zoe Lofgren (D-CA) that would limit fees credit card companies exact on transactions at retail stores-- "interchange fees." This looks like a battle between the Wall Street lobbyists and the Main Street lobbyists-- Bank of America vs 7-Eleven. Neither is especially looking out for the interests of consumers. Let's hope Welch and Lofgren and their congressional colleagues are. It's important work, although I think the country is getting kind of anxious waiting for them to deal with some of the really big issues that are continuing to drag down the economy-- like propping up the banks that are too big to fail.

Amid all the talk about systemic risk regulators, consumer protection and other fixes to our fractured financial system, there is a troubling silence on what may be the single most important reform: how to rid ourselves of banks that are so big and interconnected that their very existence threatens the world.

Too big to fail is too hard to kill, it seems.

During the credit bust, our leaders embraced the too-big-to-fail policy, reluctantly bailing out large institutions to save the system from collapse, they said. Yet even as the crisis has abated, these policy makers have shown little interest in cutting financial monsters down to size. This is especially disturbing given that some institutions have grown even larger as a result of the mess.

It is perverse, of course, to reward big banks’ mistakes with bailouts financed by beleaguered taxpayers. But the too-big-to-fail doctrine benefits the banks in other ways as well: the implication that an institution will not be allowed to fall gives it significant cost advantages over smaller, perhaps more responsible competitors.