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Speaking at Cooper Union in New York City on Thursday, Barack Obama went where few Democrats have dared to go in the past quarter-century: He made a case for more regulation. As part of a speech on his economic platform, Obama depicted the current economic crisis as a consequences of deregulation in the financial sector. “Our free market was never meant to be a free license to take whatever you can get, however you can get it,” he said. “Unfortunately, instead of establishing a 21st century regulatory framework, we simply dismantled the old one—aided by a legal but corrupt bargain in which campaign money all too often shaped policy and watered down oversight.”

This is quite a statement from a candidate who’s received $6 million in campaign contributions from securities and investment firms, just slightly less than rival Hillary Clinton, who cashes in at $6.3 million. Obama’s criticism was sharp, but his six-point plan for rebuilding a regulatory structure was short on both details and teeth, and relies on the Federal Reserve, which is like having the fox guard, well, the other foxes. Still, his use of the r-word signals what is at least a rhetorical departure for a party that has been running from regulation for decades.

Obama isn’t the only one. Last week at the Greater Boston Chamber of Commerce, Massachusetts Democrat Barney Frank, chair of the powerful House Financial Services Committee, also argued that years of banking deregulation were in part responsible for creating the subprime mortgage crisis and the larger economic downturn, which he didn’t hesitate to call a recession. He talked about the need to impose more “discipline” on investment banks, requiring a higher level of capitalization and transparency. Frank called on Congress to consider establishing a “Financial Services Risk Regulator” that would have “the capacity and power to assess risk across financial markets” and “to intervene when appropriate.”

Such a proposal may seem like too little too late in a month when the likes of Bear Stearns crumbled to dust, yet, like Obama’s speech, it suggests a small shift in what has long been the dominant position of the Democratic Party. Without entirely eschewing the sacred myth that the free market always knows best, some congressional Democrats are envisioning a more direct role for the federal government in carrying out economic policy and imposing rules and restrictions on banks and brokerages. Calls for increased oversight of financial markets come at a time when the Federal Reserve System, the quasi-public institution that is seen as the fulcrum for managing the economy, is losing credibility, what with its failure to predict or head off the current crisis and its ineffective and controversial responses once it arrived. Americans are beginning to look elsewhere for leadership on these issues. As the economy continues to decline, some voters may finally start asking their government to rein in Wall Street. And some Democrats may finally be willing to veer out of lockstep in the party’s long march toward deregulation.

Deregulation has been the mantra on both sides of the aisle since the late 1960s. Long gone are Democrats like Michigan’s Phil Hart who, as chair of the Senate Antitrust Subcommittee, held hearings on the concentration of economic power in the United States, and proposed expanded government regulation of everything from the oil and auto industries to pharmaceuticals to professional sports. Hart believed that because wealth and power were concentrated in the hands of such a small number of corporations, the market economy had become no more than a facade. In this context, what would bring about lower prices and greater productivity and innovation was more government intervention and regulation, not less.

Hart got a Senate building named after him, but his warnings about the threat of unbridled corporate power and consolidation went unheeded. Instead, the rush to deregulation began, first in the transportation sector. Efforts begun under Richard Nixon and Gerald Ford came to fruition under Jimmy Carter, who hired deregulation guru Alfred E. Kahn to head the Civil Aeronautics Board, the widely loathed agency responsible for regulating the airline industry. Senator Ted Kennedy and his then aide, future Supreme Court Justice Stephen Breyer, embraced deregulation as a consumer issue, and with their support, Kahn quickly worked his way out of a job: The 1978 Airline Deregulation Act dissolved the CAB and removed most regulation of commercial airlines. Carter also signed into law bills deregulating the railroads and the trucking industry.

You could argue that transportation deregulation has been a wash—replacing a system of bureaucratic incompetence with one of profit-seeking negligence, and exchanging safety for lower prices. The same cannot be said for the deregulation of the energy sector, notably the natural gas and oil industries under Ronald Reagan, and the electric utilities under George H.W. Bush and Bill Clinton. Left to its own devices, a deregulated energy industry has given us Enron and Exxon—California brownouts and $100 barrels of oil. Deregulation of the telecommunications industry, also under Clinton, reduced the number of major phone service providers to just a handful of multimerged giants.

Even more damaging, in light of today’s economic crisis, was the sweeping deregulation of the banking and financial services industries that took place in the 1990s. What makes this enterprise particularly confounding is not only the fact that it took place under a Democratic president with support from a majority of Democrats in Congress, but that it followed so closely on the heels of the savings and loan crisis, which ought to have served as a cautionary tale on the dangers of deregulation in the banking sector. The Depository Institutions Act of 1982, another Reagan initiative, was supposed to “revitalize” the housing industry by freeing up the S&Ls to make more loans. Instead, the regulation rollback led to what economist John Kenneth Galbraith called “the largest and costliest venture in public misfeasance, malfeasance and larceny of all time” as they engaged in a fury of high-risk lending. The collapse that followed cost taxpayers an estimated $150 billion in government bailouts, and contributed to the recession of the early 1990s.

Yet Bill Clinton, elected in large part because of that recession (a la James Carville’s “It’s the economy, stupid”), was talking about deregulation before he was even inaugurated. The National Review reported that “Bill Clinton embraced at least one Reaganesque idea at the Little Rock economic summit” he held in December 1992: “banking deregulation.”

The banking industry objected to regulations put in place in 1989 after the S&L debacle, as well as others dating back to FDR. The heads of the six major U.S. banking associations, according to the National Review, had written “a long letter to the President-elect in December advocating nine substantive reforms.” The conservative magazine concluded that the new president seemed more than willing to oblige, but bank deregulation was being held back by such powerful congressmen as “House Banking Chairman Henry Gonzalez (D., Tex.), a populist throwback to the Thirties who believes bankers are by definition out to exploit the ‘little guy'” and “House Energy and Commerce Chairman John Dingell (D., Mich.), who holds a quasi-religious belief that banks caused the Great Depression and must be tightly regulated. (Dingell’s father was a principal author of the Glass-Steagall Act of 1933.)”

The Glass-Steagall Act was, in fact, a primary target of the Clinton-era deregulation effort. An early piece of New Deal-era legislation, the act was passed in response to speculation and manipulation of the markets by huge banking firms, which most liberal economists believed had brought on the crash of 1929. Glass-Steagall imposed firewalls between commercial banking and investment banking, and between the banking, brokerage, and insurance industries. According to the Center for Responsive Politics, which tracks lobbying and campaign contributions, “Eager to create financial supermarkets that peddle everything from checking accounts to auto insurance, the three industries for years have lobbied Congress to streamline regulatory hurdles that bar such operations.”

Despite Bill Clinton’s announcement that “the era of big government is over,” it took the better part of his administration for him to push these initiatives through Congress. In 1999, Treasury Secretary Robert Rubin, always a good friend to Wall Street, finally brokered a deal between the administration and Congress that allowed banking deregulation to move forward. Shortly after the compromise was reached, Rubin took a top position at Citigroup, which went on to embark upon mergers that would have been rendered illegal under Glass-Steagall. As the New York Times put it, Rubin would be leading “what has become the first true American financial conglomerate since the Depression”—a conglomerate that could exist only because of legislation he had just shepherded through Congress.

Passage of the Financial Services Modernization Act of 1999 was celebrated in a Wall Street Journal editorial as an end to “unfair” restrictions imposed on banks during the Great Depression, under the headline “Finally, 1929 Begins to Fade.” But Russell Mokhiber and Robert Weissman, writing in Mother Jones, warned that the legislation, which amounted to the “finance industry’s deregulatory wish list,” would “pave the way for a new round of record-shattering financial industry mergers, dangerously concentrating political and economic power.” Mokhiber and Weissman also predicted that such mergers would eventually “create too-big-to-fail institutions that are someday likely to drain the public treasury as taxpayers bail out imperiled financial giants to protect the stability of the nation’s banking system.”

Enter Bear Stearns. In addition, the merging of commercial and investment banking helped enable high-risk mortgage lending to make its way into the mutual funds and 401Ks of millions of Americans in the form of mortgage-backed securities. “Diversifying bad debt just spreads the poison,” as Frank said in his Boston speech. It also makes a falling housing market reverberate throughout the economy far more than it did even during the S&L collapse. Enter the subprime crisis. And welcome back, 1929.

As these new financial giants go into freefall, a little regulation once again sounds like a good idea, just as it did in 1933. But increased regulation will never come willingly from the Federal Reserve, an “independent entity” that is answerable to no one, and has always operated largely in the interests of the big banks that make up its membership and provide its funding. Under two decades of leadership by the notorious anti-regulator Alan Greenspan, the Fed took a hands-off approach, preferring to set “guidelines” for the financial industry rather than enforce rules. In December 2007, the New York Times compiled a rundown of the multiple warnings and pleas made to Greenspan, over a period of at least seven years, to address the dangers posed by subprime lending—all of them, of course, rebuffed by the man who still claims he couldn’t have predicted that the housing bubble would someday burst. The Fed’s approach is unlikely to change much now—at least, not without a fight.

The Federal Reserve is set up in such a way that Congress cannot force its hand. But it can apply pressure, by way of threatening to pass legislation to accomplish what the Fed refuses to do. That’s what Barney Frank did last summer, when he thought Fed chair Ben Bernanke wasn’t doing enough about predatory lending practices. “The Fed has the authority to spell out rules about what is unfair and deceptive,” Frank said in an interview with Bloomberg News. “If by default the Fed is not in the process of doing it, we, I think, should pass a law giving the authority” to other government agencies.

Now, in addition to outlining a plan to deal with the epidemic of foreclosures, Democrats on the Financial Services Committee are looking at legislation that could force financial firms to sing for their supper—a few bars, at least. The Financial Services Risk Regulator proposed by Frank last week would have the power to demand “timely market information from market players, inspect institutions, report to Congress on the health of the entire financial sector, and act when necessary to limit risky practices or protect the integrity of the financial system.” In return, he said, financial institutions would have “potential access to the discount window for nondepository institutions.”

Frank was referring to the lending program for brokers started by the Fed on March 17, which extends the same lending rules previously employed by commercial banks to securities firms. Two days after it opened, Financial Week reported, under the headline “Investment bank CFOs Not Proud,” that Morgan Stanley and Goldman Sachs had already overcome concerns that borrowing from the Fed might “make them appear financially weak,” and had taken advantage of the discount window, at the new rock-bottom interest rate of 2.5 percent. So Barney Frank’s modest proposal simply says that if the government is going to back loans to billionaire investment firms at rates that middle-class credit card holders can only dream about, the companies are going to have to submit to a little oversight in return.

Critics outside the government have taken things a step further, advancing the view that if the taxpayers are going to be responsible for bailing out greedy financial giants like Bear Stearns, they ought to get a piece of them in return, as well as some say in how they are run. Conceivably, the federal government could either take over and run the affected enterprises, or at the very least take a share of the stock in order to exercise control. “I think it makes the most sense to take it [Bear Stearns] over outright,” Dean Baker, codirector of the Center for Economic and Policy Research, said in an email last week. “The key point is that we don’t want Bear Stearns taking big risks with the public’s money. I suppose it’s better that we at least share in the gains if they do this sort of gambling, but it would be better to have the government directly step in and not allow the gamble.”

Such measures are highly unlikely. But Baker argues that a bailout without some kind of consequences will have no impact at all on the kind of unrestrained, irresponsible behavior on the part of financial firms that got us into this mess in the first place. “The issue here is essentially the moral hazard problem that you had with the S&Ls,” he said. “If you have the option of making a bet where the government covers your losses, you might as well make it a risky one.”

Senate Finance Committee chair Max Baucus (D-Mont.) also says he wants to “pin down just how the government decided to front $30 billion in taxpayer dollars” to back the sale of Bear Stearns to JPMorgan Chase. He and Senate Banking Committee chair Chris Dodd (D-Conn.) have both said they will hold hearings on the matter. But according to the Center for Responsive Politics, Baucus and Dodd are among the top recipients of donations from the securities and investment industry.

In the end, the real question is what kind of regulation of these industries can come from a Democratic Party that now relies on them to fund its campaigns. A few reform-minded Democrats in Congress won’t get far without support from the White House. And while financial industry campaign contributions to Democrats have climbed ever since Bill Clinton shifted the party’s rhetoric and policymaking away from “big government,” donations in this election cycle dwarf those of the past.

With his speech in New York, Obama is clearly trying to show himself to be a man who isn’t afraid to bite the hand that’s feeding him. He is also putting space, on this issue, between himself and Hillary Clinton, in part by reminding voters of the outcomes of Bill Clinton’s policies. He denounced both “Republican and Democratic administrations” for regulatory failures leading to the current crisis, and, as the New York Times reported, “handouts supporting the speech” noted that “the banking and insurance industries spent more than $300 million on a successful campaign to repeal the 1933 Glass-Steagall Act in 1999.” Any effort Hillary Clinton might make to separate herself from her husband’s positions will be undermined by the fact that Robert Rubin, promoter of bank deregulation and still a top official at Citigroup, is an advisor to her campaign. On Monday in Philadelphia, in her own speech on economic issues, Hillary Clinton urged President Bush to immediately form an “Emergency Working Group on Foreclosures,” which “could be headed by eminent leaders like Alan Greenspan, Paul Volcker, and Bob Rubin.”

For the moment, at least, Obama has staked out the higher ground on this issue. In the end, though, says Sheila Krumholz, executive director of the Center for Responsive Politics, “No matter who becomes our next president, Wall Street will have an indebted friend in the White House.” Once the campaign rhetoric fades, the only thing that might bring change on Wall Street is a revolt on Main Street, from Americans who finally cast blame for their lost homes and depleted retirement accounts on its rightful source.