Break up megabanks, progressives urge

Labor and progressives continued to warn against the danger of moves on Capitol Hill to weaken finance reform.

A variety of sources on the staffs of several senators, for example, say that Treasury Secretary Tim Geithner and President Obama’s economic adviser, Larry Summers, may be pushing to craft a bill with Republican assistance that doesn’t strongly regulate derivatives.

Summers, as Treasury secretary in the Clinton administration, blocked attempts to regulate derivatives and other parts of the so-called shadow markets.

Progressives are also concerned that the bill approved by the Senate Banking Committee, sweeping as it is, does not break up the megabanks, necessary, they say, to creating a less risky financial system. Both Treasury and Federal Reserve officials have, thus far, rejected calls to do this.

All the Senate bill does in this regard is set up a procedure intended to allow big banks to fail with the cost borne by the banks, paid with a fee for a “resolution fund” that would bear the costs for the reorganization in the event of failure.

A progressive minority in Congress, and even in the Federal Reserve, has spoken out on the issue of bank size.

“By splitting up these megabanks, we by definition will make them smaller, safer and more manageable,” Sen. Edward Kaufman Jr., Democrat of Delaware, said yesterday.

Last week, Richard Fisher, president of the Federal Reserve Bank of Dallas, broke ranks with most of his colleagues by saying he favored the breakup of the megabanks.

The liberal economist, Mark Thoma, said yesterday that he agreed that the Senate bill, referred to as the Dodd bill, named after Senate banking chairman Sen. Chris Dodd, the bill’s main author, should be strengthened with the addition of clauses that would break up the big banks.

He said, however, that “reducing size, by itself, is no guarantee of safety. But limiting bank size is important,” he said, “because that would limit the political power of the financial institutions.”

The resolution fund in the Dodd bill, intended to force banks rather than taxpayers to pay the cost of future bailouts, continued yesterday to be a target for attack by some GOP leaders. House Minority Leader John Boehner described it as “a slush fund for bailouts.” Progressives are also hoping that President Obama will continue to push hard on finance reform. They would like him to do more than just a conventional speech in support of the Dodd bill. They are hoping that, at the very least, he will lend the administration’s weight to the fight against lawmakers who want to see it weakened. They understand, however, that to do so he will have to reject advice he is getting from some in his administration.

For a while it has looked like Democrats dependent on Wall Street campaign donations, might be fearful of pushing too hard on finance reform.

Indications are, however, that the Wall Street titans may already have decided to ditch Democrats altogether. This year, Wall Street firms have begun giving a larger share of their donations to Republicans, according to the nonpartisan Center for Responsive Politics. In January and February Citigroup Inc. Goldman Sachs, J.P. Morgan and Morgan Stanley donated twice as much money to Republicans than Democrats, a shift from 2009.

Republican Sen. John Cornyn is already bragging about the shift, “The Democrats have demonized Wall Street,” he said. “They’re not happy with that and now they are answering our calls.”

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John Wojcik
John Wojcik

John Wojcik is Editor-in-Chief of People's World. He joined the staff as Labor Editor in May 2007 after working as a union meat cutter in northern New Jersey. There, he served as a shop steward and a member of a UFCW contract negotiating committee. In the 1970s and '80s, he was a political action reporter for the Daily World, this newspaper's predecessor, and was active in electoral politics in Brooklyn, New York.