For over a year, President Obama and Congressional Democrats have been threatening to “terrorize” the financial sector by creating new stipulations that would redefine how it operates. However, despite the Democrats’ attempts to claim otherwise, the finance reform bill passed by the Senate on May 20th leaves a number of loopholes open for Wall Street Banks to continue their shady lending behaviors and speculative schemes – the same kind of speculation that led to the financial meltdown in the first place.
During the Senate bill’s negotiation process, Washington Democrat Maria Cantwell and Arizona Republican John McCain introduced an amendment to reinstate the Glass-Steagall Act. Initially enacted in 1933 in the aftermath of the 1929 Crash, in an attempt to modestly reform the banking system and rein in the most extravagant speculation, Congress repealed Glass-Steagall in 1999. This effectively removed the separation between commercial banks and Wall Street investment banks, allowing investment banks to use depositor money for speculative purposes, a vital contributing factor to the current financial crisis.
Although this amendment was far from a serious attack on the financial sector, the Obama administration and the Treasury Department, in an attempt to conciliate their friends on Wall Street, surreptitiously waged war against the reinstatement of Glass-Steagall. Despite the obvious weakness and many flaws in the finance reform bill, only two Senate Democrats, Maria Cantwell and Russ Feingold, voted against the legislation, with the Cantwell-McCain Amendment never even making the floor. Many workers and retirees, who lost their homes to these predatory bankers, may have hoped that Obama and the Democrats would change things, but the reality has been very different.
While the new bill did create a Consumer Finance Protection Agency, Democratic Senator Chris Dodd’s proposed that it be placed within the confines of the Federal Reserve, where a sort of Financial Stability Oversight Council would hold a right of veto over unfavorable consumer initiatives, thus curtailing any conceivable powers the new agency might possess. So in practice, the chickens will be looked after by the fox, also known as the Federal Reserve, which has done such a good job looking over the banks in the past period!
The Democrats claim that financial reform will reduce speculation. However, instead of outlawing the speculative investment of derivatives outright, trading would instead shift to clearinghouses and exchanges where trades and prices would be posted in public. Additionally, banks would have to maintain billions of dollars of cash on hand in order to protect them if their bets were to go bad or terminate these practices. Predictably, the investment banks have not capitulated to what would result in huge profit losses, and instead, according to a report by Moody’s, stated that they would not allow their OTC trades to move to exchanges. Fortunately for Wall Street, Timothy Geithner and the rest of the Treasury Department have also been actively campaigning to prevent this turnover of derivatives trading deemed as absolutely vital to any sort of substantial finance reform.
Democratic Senator Chris Dodd
To make matters worse, in the upcoming period when the House-Senate conference committee must work out differences between the bills passed by each chamber, Wall Street lobbyists will seek to manipulate the debate by putting even more pressure on lawmakers. In fact, the Center for Public Integrity determined that over 3,000 lobbyists representing 850 businesses, trade groups, and other corporate interests have been hired with the intention of shaping this particular bill.
A May article in the Wall Street Journal titled “Financial Reform Goldman Can Love” addressed the connection between key Senate Democrats and financial giants such as Goldman Sachs. When threatened by Democrats, the financial-sector has continually coughed up, contributing $5.3 million to Senate Democrats in 2010 alone (three times greater than their donations to Republicans). But Wall Street has no need to pick sides; whether it is the Democrats or the Republicans in power, Big Business knows that when the price is right, it has nothing to fear.
This is yet another reason why the Workers International League calls for an independent mass party of labor. Such a party, based on the trade unions, would fight for and defend the interests of the working class. Rather than submitting to pay-for-play politics, as do the Republicans and Democrats, a labor party would sever all ties to Big Business and its corporate agenda. Under a revolutionary Marxist leadership, a labor party could fight for the nationalization of banks as well as the commanding heights of the economy, and advocate for a break with capitalism itself.
American capitalism is in an epoch of decline. Marx explained that when capitalism is in decline, it tends to direct more of its investment toward speculation. This is because more profits can be made this way than through industrial production. The capacity utilization rate in the U.S. is presently less than 75%. There is so much over-capacity that the capitalists are not going to invest in more capacity or more production, as they will not make any more profit. This pushes them to the “casino economy.” This is all part an parcel of the capitalist system, and neither big business party will challenge this.
Ultimately, capitalism can not self-regulate or self reform. What about the needs of the people? Only the nationalization of all the banks, finance companies and insurance companies, under democratic workers’ control, can be unified into one system. This system would stop all the speculation and predatory lending and would instead help develop a democratically planned economy, where full employment would become a reality. Now that’s financial reform working people can love!
Source: Socialist Appeal - USA