Translating anger at banks into action

Why are so many so angry with Wall Street? Let me count the whys.

They are angry because they believe the financial industry was in large part responsible for the problems that caused the financial meltdown of 2008. They’re angry because, despite that, it was rescued through the TARP bailouts.

They’re angry because, after being rescued by taking taxpayer money, the industry proceeded in less than a year’s time to resume paying huge salaries and bonuses, at a time when millions of Americans were losing their jobs and their homes.

They’re angry because no one has gone to jail for what we now know was in some cases outright malfeasance. They’re angry because the Wall Street banks have already spent $100 million so far this year on lobbying to fight any regulations, including those that would forbid them from high-risk speculative activities backed by government guarantees.

It is way past time to stop being just angry and to actually do something — first and foremost about the big banks. The assets of the top six banks now equal 63 percent of U.S. Gross Domestic Product, up from just 17 percent in 1995. The financial markets give the megabanks the ability to borrow money at lower interest rates than the rest of the banks in the country for one obvious reason.

They are still “too big to fail,” and the markets fully expect any or all of these six banks to again be bailed out by the government if they get in trouble. The other U.S. banks actually do fail, over 150 last year.

The first thing we can do is to insist that the megabanks spin off the companies they acquired in the government’s effort to forestall a complete breakdown of the banking system.

Second, we should revisit the Brown-Kaufman amendment to Dodd-Frank, which was voted down last year in the Senate. If enacted into law, it would put a 10 percent cap on any bank holding company’s share of U.S. insured deposits and a cap on non-deposit liabilities. It would also require a 6 percent capital leverage ratio. The main argument against the amendment at the time was that we needed to give regulators the flexibility to negotiate Basel III limits.

Basel III is a new global regulatory standard on bank capital requirements, but it will not be fully implemented before 2019.

We can’t wait that long, given the banks’ reduced stock prices and their exposure to liabilities caused by massive foreclosure problems.

Third, we have to do something to curtail risky investing by banks with federally insured deposits.

Last year, the Dodd Frank Wall Street Reform Act largely kicked the can down the road by handing the problem to regulators. They were told to implement the Volcker Rule, which is supposed to take banks out of the business of investing for their own account — so called “proprietary trading.

The result?

Regulators have just released their draft rule, all 298 pages of it. It includes 350 questions for the public to consider. It is already full of loopholes and exceptions that smart Wall Street lawyers will surely exploit.

The only sure and right way to deal with commercial bank’s risky investing is to reinstitute the Glass Steagel Act, which was passed in 1933 based on the lessons learned in the 1929 stock market crash. It said that commercial banks would be separated from investment banks. The commercial banks could obtain Federal Deposit Insurance Corporation insurance on their deposits if they pledged not to be involved with risky investment banking, and investment banks could not have FDIC insurance. It protected us from major financial trouble until repealed in 1999.

Our democracy works best when the legitimate concerns of the electorate are dealt with promptly.

Overwhelmingly, Americans recognize that we have not fixed what the banks did that led to the financial meltdown.

The result is anger, and the only way to deal with that anger is to act now.

Originally published 23 Oct 2011 on