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The New Populists

In These Times

On September 15, the fifth anniversary of the collapse of Lehman Brothers, progressives toasted a victory.

True, thanks to Congressional timidity, the biggest banks have only gotten bigger since the financial crisis five years ago, and the men (yes, mostly men) in charge of them are mostly still in charge. But Larry Summers, the architect of a good chunk of the deregulation that set the stage for the crisis in the first place, had withdrawn his name from consideration to be chair of the Federal Reserve, thanks to a populist uprising within the Democratic Party.

That uprising began with a letter circulated by Sen. Sherrod Brown (D-Ohio) and signed by, among others, Sen. Elizabeth Warren (D-Mass.), committing to support current Fed Vice Chair Janet Yellen, rather than Summers, for the top Fed post. Brown and Warren sit on the Banking Committee, through which Summers’ confirmation would have had to pass, and their resistance, along with that of Republicans and a few other Democrats, raised the prospect of a messy fight that President Barack Obama realized he was unlikely to win. In his letter to the president withdrawing his name, Summers said that it was clear his confirmation process would have been “acrimonious.”

The Senate may be a mass of gridlock, beholden to Wall Street donors and clogged by the constant abuse of the filibuster, but Brown and Warren are helping bring bank reform back to life. [...]

Taking on the banks

In April, Brown and Sen. David Vitter (R-La.) introduced the Terminating Bailouts for Taxpayer Fairness Act of 2013. The bill, known as Brown-Vitter, was designed to raise capital standards, the money banks keep on hand to protect against crisis. With that buffer, Brown says, banks would be less likely to go under (and need a bailout) if something goes wrong, either within the institution or in the broader financial markets. Brown also aims to re-introduce the SAFE Banking Act, which he and then-Senator Ted Kaufman (D-Del.) first proposed as an amendment to the 2010 Dodd-Frank financial reform bill. The act “requires these banks to sell off or spin off a number of their assets so that they’re under $600 billion in size,” Brown explains.

Another bill on the table is Warren and Sen. John McCain’s (R-Ariz.) “21st Century Glass-Steagall Act,” introduced in July. [...]

None of these bills is perfect, and Brown-Vitter in particular has been subject to a host of progressive criticisms. Former bank regulator William Black wrote in New Economic Perspectives in May that even the bill’s good provisions will not do what they say they will, and its bad parts may actually wind up protecting big banks from effective regulation. Lynn Parramore noted at AlterNet that Brown-Vitter doesn’t cover insurance companies such as the American International Group (AIG), which received a massive government bailout when its financial products division nearly collapsed in 2008.

But Heather McGhee, vice president of policy and outreach at the liberal think tank Demos, sees the combination of these three bills as a potential “game-change” that would force banks to make structural changes in how they operate. [...]

“Republicans have been talking about ‘too big to fail’ for a long time,” McGhee notes. “They love to talk about it at the same time as they say the answer to too big to fail is somehow deregulation.” McCain, of course, has a history of working across the aisle (most famously on campaign finance reform). Vitter, a conservative perhaps best known for a messy sex scandal, may be a better indicator that things are changing, though of course we're still far from bipartisan consensus on bank reform.

Populism reincarnate

In fact, for far too long bipartisan consensus on Capitol Hill has been on the side of the banks, not on the side of working people. Politicians mouth platitudes about Main Street while they slash regulations and hand out bailouts. The fact that even incomplete reforms are on the agenda in the face of Big Money’s grip on Washington is amazing, considering we’re five years out from crisis and one year out of the most expensive election in U.S. history, bankrolled by $141.2 million in contributions from the Finance, Insurance and Real Estate sector—54 percent of that to Democrats.

That kind of money means that your average politician who speaks out against Wall Street in her campaign hasn't got a prayer. McGhee notes, “If they're not going to get free media attention because of who they are [like Warren] and they haven't been a beloved figure in the state [like Brown], they're not going to adopt a message that's going to draw out tens of millions of dollars of opposition messaging, opposition ads to their race. It muzzles people.” [...]

McGhee believes the change in the climate in DC should also be attributed to Occupy Wall Street getting people talking about the power of the banks once again. “It makes perfect sense that there would be more people, more politicians recognizing that the political high ground is in curbing Wall Street.”