The battle lines in the war over America’s financial future have been drawn. You probably missed it in the myopic 24-hour news cycle, but after two years of bailouts and green shoots, we’ve finally turned to the task of reforming Wall Street. And we’re likely to peer into history’s rearview mirror one day and realize that one of two events late last month foreshowed our coming economic life.
The first event portended business as usual: Big banks saw millions of dollars in lobbying payoff, when the House Financial Services Committee passed a woefully weakened version of President Barack Obama’s consumer-protection agency. The second event suggested a more remarkable future: Several thousand people stormed into the banks’ annual confab in Chicago to demand accountability.
The Nation’s Esther Kaplan tells me a majority of the protesters in Chicago were black. That’s refreshing because nobody has more at stake here than black America. We were targeted with the toxic lending products that ultimately broke the world—much as black consumers have long been targets of lending predation, from redlining to payday loans to tax scams. No surprise, then, that our neighborhoods are collapsing under foreclosure. And no surprise that black unemployment has hit 15 percent. This debate is a big, big deal for black America.
The president sent Congress his idea for a new Consumer Financial Protection Agency back in July. He envisioned sweeping reforms to the existing regulatory framework, which has failed spectacularly to protect regular Americans from Wall Street’s shenanigans. Obama’s new agency was to safeguard consumers of everything from check-cashing joints to home mortgages, all under one, independent roof.
A Senate version of the idea, unveiled by Connecticut Sen. Chris Dodd Tuesday, maintains much of that vision. But if it follows the trajectory the House bill has traveled, it won’t stay that way. By the time the House bill passed out of committee on Oct. 22, lobbyists had eroded it dramatically. The bill is now defined as much by what’s carved out of it as by what’s left in.
It’s stripped, for instance, of Obama’s much-repeated idea that banks must offer “plain vanilla” mortgages alongside their exotic loan products. It exempts community banks from mandatory review by the agency—with “community” defined broadly enough to include more than 9 out of 10 institutions—and it keeps sorely needed enforcement of the Community Reinvestment Act beyond the agency’s reach. Tax preparers and car dealers are given a pass, too—which, as ProPublica notes, is of particular concern to black borrowers. And states can toss out any particular regulation they don’t like and replace it with a still weaker one.
All that, and the Chamber of Commerce will still continue fighting the bill—when it’s not too busy attacking health care reform, launching pre-emptive strikes against climate change legislation and suing activists who point out the chamber’s reactionary politics (with which several of its own high-profile members disagree).
Not that the chamber’s alone. Banks and finance firms spent millions of dollars in the first half of this year alone lobbying against reforms—the same banks that taxpayers gave hundreds of millions of dollars last year.
It remains unclear whether banks used taxpayer money to directly pay for lobbying, but that’s an academic question at this point. What is clear is that they own Congress. One Republican committee member even tried to write language into the bill that would have barred Obama’s expected choice to head the agency from working there. Talk about hubris. As New York Times’ business columnist Joe Nocera bluntly asked, “Have they no shame?”
Clearly not. As Nocera details, Wall Street’s now peddling the identical argument against reform that it used to block and repeal measures that would have prevented today’s disaster in the first place: Namely, that we’ve got plenty of regulators and regulations already.
But set aside the cozy institutional relationship between regulators and Wall Street. And let’s set aside the fact that this system plainly hasn’t worked. The problem remains that for existing regulators, consumers come second. Regulators’ primary mission is to ensure that banks are solvent.
Writes Nocero: “When a bank decides to raise a customer’s credit card interest rate to 35 percent to make up for losses elsewhere in the credit card portfolio, that believe it or not, is a good thing from the perspective of safety and soundness” of the banking system. “Which is also why the bankers’ line about having their current regulators look out for consumers is so bogus.”
It also suggests one more troubling thing in the House bill: Rather than giving the new agency an independent oversight board, as Obama proposed, the bill creates an advisory board composed entirely of current regulators. Or, as the National Community Reinvestment Coalition put it in objecting to the bill, a board of “the same regulators whose failure to protect the American public is the reason that a new consumer protection agency was proposed.”
Still, a number of consumer advocates are supporting the bill; Democratic leaders argue it’s just one piece in a planned suite of reforms. Which is what led an estimated 5,000 people to show up screaming mad at the American Bankers Association meeting in Chicago last month. The import of public participation in this debate cannot be overstated. The Boston Globe offered a bracing measure of why: Matched against Wall Street’s millions, the Consumer Federation of America—one of the largest pro-consumer advocacy groups—spent just $50,000 lobbying for reform in the first half of this year.
Black folks cannot afford to sit this one out. We’ve still got lots of rebuilding to do, not only from this recession but from the previous one in 2001. But rebuilding, as massive of an effort as it will be, won’t be enough. If Wall Street’s lobbyists successfully undermine reform, particularly consumer protections, the future will look an awful lot like the present.
Kai Wright is The Root’s senior writer. Follow him on Twitter.