The Republic of T.

Black. Gay. Father. Vegetarian. Buddhist. Liberal.

Set the Course: Finish the Job on Financial Reform

Two years into his first term, President Obama can claim credit for two passing historic reforms — health care reform and financial reform. However, both were merely a beginning — a first step toward real reform — and fell far short of addressing effectively the crises devastating our families and communities. In his State of the Union address, Obama must defend those first steps to reform, and make the case for extending them particularly financial reform. It is imperative to defend and extend financial reform, to prevent and protect us from the next financial crisis.

Defend It

When Republicans in the House made repealing health care reform (not jobs) the first priority of their new majority, Democrats took it as an opportunity to re-sell health care reform, and remind Americans of the benefits and protections already in effect, and those to come. The GOP will almost certainly keep trying to stop or reverse health care reform, whether through court challenges or slowing its implementation. That fight isn’t over, and won’t end in the next two years.

There’s little chance that Democratic majority in the Senate will vote for repeal or that President Obama would sign such legislation. But the existing health care reform legislation is the foundation of much-needed further reforms. It must be strengthened. If it is to be strengthened, it must stand. If it is to stand it must be defended. The financial reform passed by Congress and signed by the president includes some important changes, but doesn’t go far enough to protect our economy against the factors that led to the current collapse and crisis.

As with health care reform, the GOP majority in the House, has made it clear that “undoing” financial reform is near the top of the “to do” list. And, as with the insurance industry and health care reform, Wall Street and the financial sector has invested considerable amounts of money the Republican party, with the understanding (a) the party will “undo” the modest reforms the president and the previous Congress accomplished, and (b) that the same politicians who promised the Tea Party “no more bailouts” will bail the banks out again when (even more of) their bad bets come due (again).

In his post, Robert Borosage summed up what Americans are looking for in the State of the Union address, and what questions Obama needs to answer and lay to rest. Topping the list is “Does he get it?” Appointments like Larry Summers, Gene Sperling, William Daley, etc., do not inspire confidence. The people who basically greased the skids for the current financial crisis appear to have the president’s ear.

For 30 years, we embraced a radical experiment. We denigrated government in the faith that markets would regulate themselves. We cut taxes on the wealthiest Americans in the belief the rewards would trickle down on all. We starved investments vital to our economy and our society in the belief that the market would provide them or that families could pay for them on their own. We championed free trade while emerging rivals like China embraced a hard-headed, dare we say Yankee, mercantilism, designed to capture markets and technology. We relied on debt and bubbles instead of building a solid foundation for growth. We’ve allowed entrenched lobbies and interests to corrupt our politics and distort our priorities. We’ve ended with an economy where the wealthiest 1 percent is capturing most of the rewards of growth, where companies are profiting by shipping jobs, not goods abroad. And where most American families are working harder and longer with less security and diminishing hope.

Now, in the new contested terrain in Washington, that story must be told clearly and repeatedly. The State of the Union would be a good place to begin.

That story should be easy to tell, with so many of the players on hand. But “getting it” requires more than telling the story. Yes, as Bob says, the president has to tell us how we into this mess. No, the poor did not cause the financial crisis. No, Americans’ pursuit of home ownership did not cause the financial crisis. No, minorities didn’t cause the financial crisis. Nor did Fannie and Freddie, government, the Community Reinvestment Act, or “losers” who could not pay their mortgages.

There’s plenty of blame to go around, and it’s overly simplistic to lay all of it at the feet of one entity. The president needs to remember his own words, and remind America that what got us into this mess was “an economic philosophy that has completely failed”failed to stop an impending crisis, despite multiple warnings, and allowed self-dealing and outright fraud (called “mistakes” by Wall Street bankers) by financial institutions to make the make the economic crisis worse.

But it’s a story that has been told many times. And while the president needs to tell it again, he needs to cast himself in the story, and make it clear whose side he’s on. As Mike Lux explained well before the midterm elections, Americans suffering without relief in this economic crisis believe nobody is on their side.

Being back home in the Midwest is always grounding. The most classic moment was a conversation in a restaurant with someone who was expressing anger at all incumbents and both parties who said to me “nobody is on our side.”

…The bottom line is that voters are asking the age-old question “which side are you on” and finding that to their outrage, none of the politicians seem like they are on the side of angry voters. In order to have a prayer this fall, Democrats have to show the voters both their base voters in the Rising American Electorate, and the swing voters in the working class who still don’t have good jobs — that they are fighting for regular people, not the elite. When the Wall Street bailouts did not produce jobs as promised, voters’ attitudes got set at the outrage level, and they still haven’t been reset. It is time for Democrats to show which side they are on.

The State of the Union provides the president with an opportunity to tell Americans whose side he’s on. In the next two years, the president and his party have chance to show Americans whose side they’re on — not necessarily by what they manage to get through Congress, but why what they stand for and what they fight for.

Extend It

The problem isn’t “picking winners and losers.” The problem is a system that turns 99% of us into “losers,” while the lion’s share of wealth and power goes to the wealthiest 1%. It’s that imbalance that threatens our representative democracy.

America’s founding fathers got some things really wrong (that slavery thing, for example), but they understood one thing really well: the kind of representative democracy society they were trying to build would never work unless power was widely distributed among many different actors in society. This fundamental idea was at the heart of Tom Paine’s Common Sense, Thomas Jefferson’s Declaration of Independence, the checks and balances devised in the Constitutional Convention, and the foundational arguments by Madison, Jay, Hamilton in the Federalist Papers. These pluralist theories about democratic governance have been proven right over the course of our history. When the slave-holding elite became too dominant a power in the mid-1800s, our country was torn apart in civil war. When the robber barons got too powerful in the late 1800s, our government became deeply corrupted. When the financial elites on Wall Street got too much economic and political power, the Great Depression of the 1930s and the Great Recession of today resulted. When any small group of corporations get big enough to sweep away serious competition they inevitably get big enough to control many politicians and regulators as well. What happens after that are market distortions and insider deals that make those companies ever more powerful. Once they have enough market and political power, they get even greedier, arrogant and big enough that when they make speculative mistakes, they can hurt the entire economy. And with regulators and politicians and looking the other way because of their political influence, the worst case scenario happens — and if the cycle is not stopped, it happens again.

This pattern follows like night follows day. This is why I have been saying to people for the last year that the number one goal of financial reform should be to lessen the power of the big banks- not to punish them, but to make it possible for our economy and democracy to effectively function again.

While the financial overhaul Obama signed into law ushered in important changes and protections for consumers, it does too little to change how the financial sector does business. Reform that elicits sighs of relief on Wall Street, is reform that must be expanded and strengthened — not to punish Wall Street, but to protect the economy and Americans from another crisis.

The State of the Union is an opportunity for the president to tell Americans that the financial reforms enacted last year are just the beginning, the first step toward real reform. Here are a few next steps President Obama should map out in his speech.

  • Take on “Too Big Too Fail.” Financial institutions big enough to bring down the economy — and thus claim entitlement to a taxpayer bailout — still roam Wall Street like the genetically engineered dinosaurs roaming the mad-capitalist’s playground in Jurassic Park. Financial reform is incomplete as long as these giant predators roam our financial landscape. The next wave of financial reform should take down institutions that are big enough to take down the economy, so that they can allowed to fail without catastrophic consequences for the rest of the country.
  • Give the Volcker Rule it’s teeth back. It was intended to place limits on bank risk — curtailing proprietary lending and hedge fund investments. Instead, compromise that undermined those original intents of the rule, leaving a loophole big enough for Wall Street behemoths to slip through.
  • Reduce regulator discretion. The financial crisis happened in part because those charged with regulating dangerous and predatory practices in the financial sector chose to do nothing to stop those activities. Current financial reform leaves too much to the discretion of regulators. If we’ve learned nothing else, it’s that over-relying on fallible human decision making is no recipe for economic stability. The next wave of financial reform must not rely on regulators who missed the last impending meltdown
  • Strengthen consumer protections. If part of the problem that led to the financial crisis was that no one in particular was watching Wall Street, another major problem was that almost no one seemed to be looking out for consumers. President Obama made the right decision to put Elizabeth Warren at the head of the Consumer Protection Bureau she thought up in the first place. The Chamber of Commerce and the GOP will try everything possible to eliminate or undermine this agency. The president and his party should be uncompromising in their defense and support of this agency.

Last week, Americans were reacquainted with someone they haven’t for some time, when President Obama took to the stage in Tucson and reminded us of his ability to speak to Americans across our divisions. He not only reminded us of our shared values, but reminded us that he shared them too. For a moment he was, as Howard Fineman wrote, the dad next door.

When Obama steps up to deliver the State of the Union, Americans will be waiting to see that guy again — who shares, and gives voice to the values, care and concerns that unite us. But American still caught in the grip of the financial crisis and its consequences won’t need to hear from the dad next door again. We want to hear from the Obama who ignited our hopes, inspired us to believe in the possibility of change, and energized us to work for it. We want to hear from the President who shares our values, cares and concerns, to tell us how he will continue to fight for them.

If that Obama speaks to us, and calls us to join the fight for real reform, we will join him.

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