Merkley-Levin

The Brown-Kaufman proposal probably has little chance of success, so in my long standing tradition of supporting the underdog I want to throw my support behind it.

The reason is very clear: our biggest banks are too big. Not just too-big-to-fail, but too big to do anything properly. They are unmanageable in any real sense. Even an army of regulators has no chance of uncovering all the sly tricks being used to hide the absurd risks being taken. Internal risk management is buried under layers of hot-shot sales oriented bonus driven executives. Auditors, lawyers, accountants, and the rating agencies all buzz around feeding off the flow of deals and doing everything they can to obscure the truth in order to keep that flow surging. Boards of directors see only extremely redacted versions of the activities being sanctioned every day. And shareholders don’t give a hoot since they can off load their shares at the first sign of trouble, and will get bailed out in any case if the worst happens.

In other words every single aspect of control is perverted in order to maintain the orgy of cash that funds the extravagant lifestyles of those within the perimeter of the banking system. Everyone inside the system is to blame, and because of that no one can be blamed – we would have to replace everyone, and we simply are incapable of doing so.

The game is rigged against the public.

Every aspect of innovation is designed not to benefit customers, but to create new ways to gamble within the system. It is no accident that, as the banks return to profitability, their recovery is driven by trading – gambling – and not by lending or funding the real economy. It is as if the banks have become so huge that they operate in an economy all their own and are disengaged from the world around them.

Except of course that they suck in our savings and deposits in order to create the currency needed for their gambling games.

And when it all goes awry they expect us to fund and support their lavish lifestyles.

The urgency of cauterizing the banking system, perhaps sanitizing is a better word, is so high that I regard it as the make-or-break issue for our economy. Until we restore a banking system that is socially productive, one that actually is engaged in banking and not in proprietary trading, our ability to generate jobs and to maximize our wealth will be severely curtailed, if not eliminated.

The administration is only now arriving at this realization. The Republicans are of in some distant land in denial of the problem. And the banks are pouring money into their resistance – Goldman Sachs alone handed out more cash to Senators in March than in all of 2009. M ost went to GOP Senators who were opposing any reform at all.

It is this ability to distort and subvert democracy that ought to energize us all against the banks.

They are simply too big.

So in addition to that list of problems that bank size creates we should add their ability and willingness to distort politics.

And lest you imagine this is a local issue, watch the way in which the biggest banks lavish entertainment and attention at this week’s IMF meetings. The problem is not just here: it is worldwide.

Which is why I support Brown-Kaufman.

Putting in place a ‘resolution authority’ to enable the orderly liquidation of our largest banks is insufficient. They are all international. Resolution will get bogged down in a maze of international jurisdictional dogfights in which only the bank shareholders win. By becoming so complex and internationally entangled the banks hope to have avoided the law of any jurisdiction. They move profits around to lower taxes to bilk everyone. They move assets to the nation with the most lax regulation. And they hide both profits and assets along the way by playing one bureaucracy of against another.

These games are all legal.

They are all unethical.

They are all tolerated by politicians and exploited by the banks.

We should not be surprised by any of this behavior: the banks are simply gaming the system as best they can.

So we should change the system.

Radically.

By which I mean carve the banks apart. We should employ anti-trust style tactics and cut them down to reduce their individual power and to encourage competition. Divide and conquer. It is not enough to have clever laws on the books that can be deployed to break Citibank when it goes bust – still a high likelihood at sometime in the future. Why? Because at crunch time the political and economic calculus favors capitulation and bail-out. To avoid that end, we need to be blunt in our attack on the banks. They have demonstrated – copiously – they are oblivious to their role in the recession. Their continuing lack of self-control and now their imperious hubris in the face of the Goldman scandal, should be sufficient to motivate anyone with an objective interest in the safety of the economy.

The big banks must be reduced. If they suffer so be it. They have shown no remorse. Instead they have returned, after having been revived by our infusion of cash, to exactly the same path that led to the disaster. For this alone they deserve no sympathy.

Brown-Kaufman, augments the Dodd bill by placing hard limits on the size of a bank. In my opinion even Brown-Kaufman is being too lenient, but we have to start somewhere. We have to destroy the bank’s ability to connive their way back to immunity. That means reducing them from their lofty status and putting them back underfoot.

Dodd gives us resolution authority and consumer protection. Brown-Kaufman gives us size limitation. The Agricultural committee gave us derivative regulation. Sum these up and we have a good start on the long road back towards banking stability. We still need international coordination, but that will be more easily attained once we appear to be serious in our efforts to fix the crisis in American capitalism.

There has been much talk of the need to re-esatblish America’s good name in the world. That talk is usually in the context of the damage wrought by the Bush foreign policy. But just as damaging has been the collapse of the respect for our business acumen. Our banks have been exposed and along with them the seamy side of our economic model. Outright greed motivated the crash. Untrammeled hunger for profit led the banks to forget how to be banks. We need to replace that ethic with a more durable one that is not so relentlessly exploitive of the American and worldwide public. We need to save American capitalism from itself. That requires drastic and painful action. It means imposing our will on the banks.

After all our banks caused the recession. They ought to pay for its clean up. We need to make our banks safe again.

Support “SAFE” banking.

Addendum:

For those of you keeping score, there is another amendment floating about that deserves to make it into the final legislation: the Merkley-Levin proposal to enshrine the Volcker rule into law. This would force the separation of main street style banking from the casino style pseudo-banking so beloved of Goldman and the others. In effect it would re-institute the old Glass-Steagall Act that helped keep banking relatively stable for about seventy years.

Also: the White House and representatives from the House are urging Dodd not to compromise. They see the political virtue in forcing the GOP to come clean and decide whether it wants to support Main Street or Wall Street. The downside to this hard nosed position is that it opens up the possibility of a filibuster. That eventuality is receding quickly, though, as more and more GOP Senators run away from publicly supporting Wall Street.