Senate Vote Signals Historic Change in Wall Street Political Clout
Robert Creamer is a long-time political organizer and strategist and author of the recent book: "Stand Up Straight: How Progressives Can Win," available on amazon.com.
The Wall Street Reform bill passed last night by the United States Senate goes a long way toward reining in the reckless casino economy that cost eight million Americans their jobs, and brought our economy to its knees.
But its passage signals an even more significant shift in the economic assumptions and power relationships that undergird American political and economic life.
For four decades Wall Street had its way with American government. The big Wall Street banks and their economic apologists dominated the main stream of economic thought - and their army of lobbyists called the shots on Capitol Hill. Last night their domination came to a screeching halt.
Wall Street's minions - and their Republican enablers - did fend off many proposals that would have strengthened the bill that passed last night. But, contrary to conventional wisdom, as the original Wall Street Reform bill moved from the House to the Senate - and then to the Senate floor - the bill actually got tougher.
The bill that passed the Senate includes provisions detested by the biggest Wall Street banks that would prevent them from trading in derivatives - the economic time bombs that were at the center of the 2008 financial collapse. That provision alone would cost the big Banks $40 to $50 billion in profit.
As the bill moved through Senate debate, provisions were added to place new restrictions on credit rating agencies, limit fees that credit card companies can charge to merchants, and force big banks to maintain higher capital requirements.
Wall Street failed in its attempt to stop a new Consumer Financial Protection Bureau that would protect borrowers from many of the abusive and fraudulent financial practices that lead to the economic collapse and siphoned billions -- from the pockets of those who work in the real economy -- to the bloated financial sector.
In the final hours of the debate, Republicans made one last attempt to exempt auto dealers from consumer protection rules when they make auto loans. They couldn't manage to get the provision
to a vote.
The reason for their change in fortunes is simple. Wall Street is toxic. Support for Wall Street is becoming another third rail in American politics. Even the Republicans justified their defense of Wall Street in Orwellian terms that made it appear they were attacking their Wall Street sponsors. Democrats found that attacking Republicans for supporting the Wall Street banks was like shooting fish in a barrel.
The economic collapse, the taxpayer bailout, and then their subsequent return to business as usual - to the same old recklessness and greed -- have sickened everyday Americans. Now the chickens are coming home to roost. Or to put it another way: the pigs get fat, the hogs get slaughtered.
Not that it's time to have a tag day for the "ten million dollar bonus" crowd. And Wall Street's army of lobbyists will do everything they can to weaken the final bill in House-Senate conference. But a significant turning point has been reached. The notion that the "geniuses of Wall Street" know best - that they should be left on their own to suck up as much of the nation's wealth as possible because it serves the "common good" - that dog will no longer hunt.
In 1792, the nation suffered its first credit crisis. Financial crises recurred in the United States roughly every 15 years until the Great Depression. Then New Deal reforms changed the game. The Security and Exchange Commission instituted tough new rules for the stock market. The Federal Deposit Insurance Corporation provided stability to the nation's banks - and its means of allocating credit to the real, productive economy. And the Glass-Steagall Act created a firewall between banking and the risky speculative activities that had - in large measure - caused the credit collapse that led to the Great Depression.
For the next fifty years America had uninterrupted economic growth - with no recurrence of financial meltdown. That ended when the resurgent "markets-know-best" conservative economic movement led to the deregulation of the savings and loan industry. Undaunted by the bust that followed the savings and loan disaster, Wall Street successfully pushed to repeal Glass-Steagall - and prevent the regulation of its new "innovative" esoteric derivative securities. The casino economy and financial sector exploded.
During the period 1973 to 1985, the financial sector never earned more than 16% of domestic profits. This decade, it has averaged 41% of all the profits earned by businesses in the U.S. In 1947, the financial sector represented only 2.5% of our gross domestic product. In 2006, it had risen to 8%. In other words, of every 12.5 dollars earned in the United States, one dollar goes to the financial sector, much of which, let us recall, produces nothing.
Wall Street's expansion is one big reason that most of America's economic growth during the last decade has flowed into the hands of investment bankers, stock traders and partners in firms like Goldman Sachs. The Center on Budget and Policy Priorities reports that fully two-thirds of all income gains during the last economic expansion (2002 to 2007) flowed to the top 1% of the population. And that, in turn, is one of the chief reasons why the median income for ordinary Americans actually dropped by $2,197 per year since 2000.
The passage of Wall Street Regulatory Reform symbolizes a fundamental change in the political power of Wall Street, and a collapse of the economic and political narrative that it used to justify its confiscation of an ever-growing portion of the economic pie.
Wall Street is in political retreat. But the most important lesson of politics is that when they're on the run, that's the time to chase them. Progressives - and all advocates for the interests of everyday working people - need to make sure that we consolidate our victories as the Wall Street Reform bill goes to conference. And once that is done we should continue the crusade to limit the size and power of the financial sector, and redirect resources to the people in our economy who actually create the goods and services that generate widely-shared economic growth.
