One year ago a good argument could have been made for cynicism and despair, at least when it came to financial reform. More than four years after an epidemic of Wall Street fraud took down the economy, there had been no indictments of financial executives. Bank CEOs were still treated like royalty in Washington and New York. We still lacked comprehensive regulatory reform. The President’s much-hyped task force on foreclosure fraud had negotiated a cushy, bank-friendly settlement aimed more at placating the public than in restoring justice to ripped-off homeowners.
Twelve months later, things are still tough. The only bank indictments we’ve seen are of low-level officials. We still don’t have meaningful reform. And yet there are unexpected and promising signs.
Call them “green shoots.” True, it’s a problematic phrase, it's been used so often to raise false economic hopes since 2008. These shoots could wither and die. But there’s something in the air we wouldn’t have predicted one year ago: Hope.
Why? Because Sen. Elizabeth Warren and other populist leaders are continuing the fight for genuine financial reform. Because the public’s resolve remains strong, even after five discouraging years. Because regulators and law enforcement officials are feeling the heat, and it shows.
To be sure, this is no time to declare victory. But it is time to renew the call to battle, because these signs show that it's worth the effort.
Attitudes Toward Wall Street
Plutocrats have good reason to lament. The public’s still against them.
Five years after Wall Street ruined their economy, Americans remain unforgiving. A Reuters/Ipsos poll in September told the story: 53 percent think too little has been done to prosecute bankers, and only 13 percent are satisfied with efforts so far. Roughly one-third believe breaking up the big banks will help the economy, and a similar percentage believes that Wall Street does nothing to help the overall economy.
They’re right. And they’ve reached these conclusions with virtually no political or media leaders speaking out on their behalf. Nevertheless, economic justice remains enormously popular, as the New York City mayoral race and Sen. Warren’s career arc both demonstrate.
Elites are rushing to join the bandwagon, with newly populist political rhetoric and well-funded new think tank efforts aimed at studying inequality. Inequality has, in fact, become an issue of major concern among global financial elites, a fact which the leaders of Wall Street-funded group Third Way learned to their dismay last month.
Economic populism and financial reform are closely linked, especially as the “financialization” of our economy diverts more and more of our wealth to Wall Street. Public sentiment favors a fair economy. It remains strongly anti-Wall Street, strongly pro-reform, and heavily in favor of enforcing the law against criminal bankers.
And it’s not just the public which judges bankers harshly. Here’s some strong language, which was used to describe the leaders of America’s bank: “the apparent lack of respect for law, regulation and the public trust,” and “deep-seated cultural and ethical failures.”
Those aren’t the words of a radical leftist. They were spoken by William J. Dudley, President of the New York Federal Reserve Bank.
The Political Response.
How has our democracy responded to this public cry for change? Poorly, for the most part. It’s hard to overcome the power of corporate money in our political system. But a number of elected officials were active on the financial reform front.
The year definitely belonged to Sen. Elizabeth Warren. Warren has used her prominence to advocate fiercely for economic populism, and she has used her power to press for financial reform.
Among other things, she wrote letters. As a United States Senator, and as a member of the Senate Banking Committee, Sen. Warren is entitled to ask questions of government agencies – and to receive a response. She began with a letter to the Office of the Comptroller of the Currency (OCC), an agency whose record has been spotty. After nearly five years of cushy settlement deals between the government and US banks, she asked the question no one else had:
“Has the OCC conducted any internal research or analysis on the trade-offs to the public between settling an enforcement action without admission of guilt and going forward with litigation as necessary to obtain such admission? If so, can you provide that analysis to the Committee?”
The answer, as we documented here, essentially amounted to a single word: No.
Warren then wrote similar letters to the Federal Reserve, the Justice Department, and the SEC. Interesting things began to happen. Within two days of receiving Warren’s letter, Attorney General Eric Holder retracted his comments about being unable to prosecute too-big-to-fail banks. And outgoing SEC chair Mary Schapiro revealed the depth of her cynicism when she objected to the phrase “revolving door”: “I won’t be going back to government,” Schapiro said.
Warren didn’t just write letters. She also interrogated bank officials and regulators who were accustomed to easier treatment on the Hill, and continued to speak up against Wall Street wrongdoing, economic inequality, and a political system which is stacked against the middle class. There were other other political heroes this year, too, including Senators Jeff Merkley, Sherrod Brown, and Bernie Sanders, and Representatives like Alan Grayson.
Perhaps the most compelling symbol of political change we saw all year was when Larry Summers reached out to Elizabeth Warren in a bid for the Fed job – and was rebuffed. As old-timers in AA used to say: We may not be where we need to be, but thank God we’re not where we were.
The Federal Reserve
Speaking of Summers: The White House was unable to nominate former Treasury Secretary Larry Summers to run the Federal Reserve, despite pushing his nomination all summer while Summers pivoted to his own brand of ‘economic populism.’ But there was far too much political resistance, and the White House eventually accepted the inevitable and nominated the person the President should have chosen in the first place: Fed official Janet Yellen.
This victory was significant – not because Yellen is more progressive than Summers, but because Summers was part of the highly influential “bipartisan” cabal which helped ruin the economy in the first place. The Democrats in this group think nothing of deregulating and coddling Wall Street banks and investment funds when they’re in office, then enriching themselves at the same Wall Street institutions when they’re not. Summers, former President Bill Clinton, Robert Rubin, Peter Orszag, Jack Lew, Tim Geithner, Bill Daley – they’ve all done it.
Summers fought decisively on behalf of Wall Street interests. We like some of the work he’s doing now, but it was important that the Administration, and the powers-that-be, get the message that this cozy relationship – and a long track record of policy failure – renders you unfit for positions of authority.
The banking crime wave goes on. Earlier this year we called it a “banknado!” Goldman Sachs was found to be manipulating aluminum prices. JPMorgan Chase was revealed to have engaged in widespread energy fraud. HSBC was found to have laundered money for the mass-murdering Mexican drug cartels.
And all of the major banks were implicated in the LIBOR scandal, where they fraudulently manipulated exchange rates for their own benefit.
This was not a watershed year for law enforcement on Wall Street. Banks have been found to engage in large settlements in which they “neither admit nor deny wrongdoing,” but promise not to do it again. Then they do, over and over and over.
Despite the Justice Department’s repeated insistence that bank fraud cases are “too hard” to prosecute, a Federal jury convicted hedge funder Michael Steinberg of insider trading. New York City prosecutor Preet Bharara should be the United States Attorney General – or, at a minimum, a top Justice Department official.
The Justice Department remains gun-shy about criminal prosecutions, even for Wall Street’s widespread mortgage fraud. But it did recently announce two civil suits, against Citigroup and Merrill Lynch, over the fraudulent packaging of mortgage-backed securities. And the DoJ filed a civil suit against Standard & Poor’s, one of several “agencies” (actually private corporations) which certified worthless mortgage-backed securities as “AAA” investments.
Arrest warrants were issued for JPMorgan Chase employees – not for the massive fraud which led up to the 2008 crisis, but for the “London whale” trade which led to billions in losses for the bank. Those indictments were limited to low-level employees.
Still, if nothing else, the arrests punctured Wall Street’s aura of invincibility – especially at the nation’s largest bank, which also boasts the most arrogant bank CEO. That’s not nearly enough, unfortunately, especially as the statute of limitations runs out on the crimes which led to our current financial misery and robbed the global economy of trillions of dollars.
The Consumer Financial Protection Bureau, Elizabeth Warren’s brainchild, began to have an impact this year – both in its promulgation of rules, and in its landmark $2.1 billion settlement against deceptive mortgage servicer (and foreclosure factory) Ocwen. (Another servicer was found to have identified itself as “the office of the CEO” on behalf of Bank of America, which reportedly knew of the arrangement, making it easier to fraudulently foreclose on homeowners. Paging the CFPB …)
One of the biggest regulatory stories of the year was the agreement among all relevant regulatory agencies on the scope of the Volcker Rule, which was originally designed to end risky trading without breaking up the big banks. Regulators were finally able to agree on the rule’s language and terms, which were stronger than observers had expected.
Former Sen. Ted Kaufman, a genuine hero in the financial reform effort, wrote that the new Rule is “so riddled with exceptions, contradictions, and foggy language that the major celebrants will be the Wall Street lawyers who have been given the Christmas gift of their dreams.”
Kaufman adds: “Privately, while some of their lawyers will be working on suits to reverse elements of the rule, most will be joyfully pointing out all the ways it can be easily circumvented.”
We tend to agree. But in keeping with the “green shoots” theme, consider this odd fact: Despite the claims that the Occupy movement failed, Occupy the SEC is cited no less than 284 times in the final Volcker Rule regulations.
We didn’t get the Rule that we needed – we need a return to Glass/Steagall for that – but regulators are no longer able to entirely ignore the voice of economic populism, especially when it’s as smart and undeniable as that of Occupy the SEC.
The Grass Roots
Green shoots spring up at the grass roots. Public pressure has created signs of movement in Washington. But it’s not nearly enough. There were additional hopeful signs all around the country.
In Richmond, California, housing activists persuaded the city to use “eminent domain” as a legal measure against banks which have ruined families and neighborhoods through foreclosures. The Mayor, her allies on the City Council, and local activists are still engaged in a fierce battle against powerful interests. But other cities, including Seattle, Irvington, NJ, and Yonkers NY are exploring the possibility of following Richmond’s lead.
In a potentially important development, the ACLU has filed a suit against the Federal Housing Financial Agency to determine whether it was improperly influenced by the banking industry to act against the eminent domain movement.
Activist groups like the Home Defenders League are fighting for homeowners. Local politicians are taking on the big banks. Candidates for major office are adopting populist themes. But it starts at the bottom, not the top, with activists who engage with and crystallize the public’s desire for justice.
The Real Work
Any roundup of an entire year is bound to be incomplete, and any single theme will fail to capture all the nuances of the year that has just passed. But, despite the setbacks we’ve experienced and the power of the Wall Street lobby, there is reason to be hopeful.
“Green shoots” aren’t yet a garden. They need attention and time if they are to grow. There isn’t much time left, and that attention must first come from us. It begins by seeing the signs of opportunity, of change, of hope. Then the real work begins, and it will need to happen the way all green things grow: from the bottom up.