"The banks--hard to believe in a time when we're facing a banking crisis that many of the banks created--are still the most powerful lobby on Capitol Hill. And they frankly own the place."
That's what Democratic Senate whip Dick Durbin said last May when the Senate failed to pass a bankruptcy reform bill that would give bankruptcy judges the power to reduce the principal of homeowners' underwater mortgages, the same power bankruptcy judges have to reduce the principal on commercial mortgages like those held by Donald Trump that get in trouble. Indiana Democratic Senator Evan Bayh, one of the banks' favorite Senators said at the time:
When I was actively involved at the moment it broke down it was my impression there were no Republicans who were willing to support it and at least a few Democrats have stated openly on the record that they were in opposition. How you get to 60 with those numbers is a mathematical problem.
The putative Democrat Bayh appeared to have few regrets that 40 Senators could block any action that would help homeowners keep banks from foreclosing on their homes. And President Obama did nothing to confront or embarrass those Senators, mostly Republicans but including several Democrats, from siding with the banks against the people.
Now The New York Times is reporting that as a result of massive bank lobbying, it's becoming increasingly likely that the Senate will reject another pro-consumer reform that would end government subsidies of private banks making student loans, would save $80 billion over the next 10 years and enable more middle class and poor students to afford college.
President Obama called the proposal a "no brainer". But that was before the banks launched a multi-million dollar lobbying campaign in Congress to kill the proposal and keep their corporate welfare. Sallie Mae, the national largest private student lender, doubled its lobbying expenditures to $8 million in 2009 and other private lenders spent millions more, according to an analysis prepared for The Times by the Center for Responsive Politics. Political action committees for the lenders made $2.1 million in political contributions in 2009, evenly split between Democrats and Republicans. In typical Washington revolving door fashion, one of the banks' top lobbyists fighting the reform is Democrat Jamie Gorelick who was the number two person in President Clinton's Justice Department before Clinton appointed her Vice Chairman of the scandal plagued Fannie Mae where she earned $24,466,834 in 5 years including $779,625 as a result of Fannie Mae fraudulently manipulating its books. Now, with the help of lobbyists like Gorelick, passage of the student loan reform, too, appears in doubt.
The question is, if relatively simple "no brainer" reforms like bankruptcy reform and student loan reform, which would save the government tens of billions of dollars and make the lives of middle class Americans better, can't make it through a Democratic controlled Congress, how will more fundamental reforms of the financial system fare?
Reports are surfacing that proposals like a consumer financial protection agency, and the so-called "Volker rules" to prevent commercial banks from gambling federally insured consumer deposits in the global financial casinos, won't even make it out of the Senate Banking Committee chaired by long-time bank friend Chris Dodd who is retiring this year under the cloud of financial scandal. It's looking increasingly likely that if any financial "reform" emerges intact from the Senate, it will be so watered down that it will do little to reign in Wall Street's most egregious practices, prevent the next bubble from developing, or mitigate the need for the federal government to again bailout the financial system when the next bubble bursts.
And just to be sure, major Wall Street banks, who have given campaign dollars to Democrats, are threatening to shift their contributions to Republicans, according to reports in Monday's New York Times. By helping electing Barack Obama--the first African American President who appeared to be an advocate of the people against the special interests--Wall Street banks may have successfully headed off a full-scale political rebellion when they were bailed out with hundreds of billions of dollars in taxpayer money and asked for next to nothing in return. Now that there is talk of serious reform to prevent the next financial bubble and the next taxpayer-funded bailout, they'll do everything they can to elect a Republican Congress, and threaten remaining Democrats, to be sure those reforms never happen. And the Supreme Court has just handed them a nuclear weapon to carry out their plans. They can give unlimited amounts of money to any Congressperson who will support them and threaten defeat to any Congressperson who opposes them. In fact, they don't even have to spend the money. All they have to do is have their lobbyists tell enough Senators who might otherwise support financial reform that they're prepared to spend unlimited funds to defeat him or her and the Congressperson is likely to bend to their will.
By reforming the financial system, FDR may have saved capitalism and the banking system from itself, even over the organized opposition and greed of the big banks. Among other things, FDR and a Democratic Congress instituted a bank holiday, created Federal Deposit Insurance to rekindle confidence in the banking system, formed the Securities and Exchange Commission to regulate the public investment system, and passed the Glass-Steagall Act to separate federally insured commercial banks from investment banks and hedge funds. The regulatory regime created under the New Deal helped protect the American and global capitalist financial system from meltdown for over 75 years until memories faded and it was slowly eroded under the Presidencies of Ronald Reagan, two President Bushes, and Bill Clinton.
The question is, does Barack Obama have the courage and political will to follow in the footsteps of FDR and again act to protect our financial system from the next bubble which will be the inevitable result of Wall Street's unregulated greed? To do so, he will have to stop acting like he's the Senate Majority Leader looking to cut a bogus bipartisan deal that can only produce what columnist Tom Friedman has called "suboptimal solutions", and go over the heads of Congress to speak directly to the American people. Or is Obama also too bought off by Wall Street banks who helped finance his Presidential campaign and whose existence was saved by the largesse of the taxpayers?
If Obama fails to lead, may God save these United State of America. The bankers and their paid concubines in Congress sure as hell won't.
To sign a petition sponsored by the Campaign for America's Future asking your Senator to end $80 billion dollars in bank subsidies for student loans, click here.