Things are looking worse and worse for the liberal advocates of legalism and reform as direct action continues to win over and over and over again while doing things through the proper channels continues to fail. The latest blow is the resignation of Federal Reserve Board Governor Daniel K. Tarullo. Mr. Tarullo’s term was supposed to continue until 2022 but, for undisclosed reasons, he has left prior to that expiration. Know for his rigorous (or haphazard, at least according to the bankers) stress tests that he conducted against the banks to test how they would weather various economic emergencies, Mr. Tarullo was the closest thing to a public advocate on the Fed. Admittedly not a high bar, but nevertheless with his departure things will likely get worse for the working class.
The ‘dollar’ is mentioned once in the Constitution:
The migration or importation of such persons as any of the states now existing shall think proper to admit, shall not be prohibited by the Congress prior to the year one thousand eight hundred and eight, but a tax or duty may be imposed on such importation, not exceeding ten dollars for each person.
This is the infamous block on the abolition of the slave trade put into Article I Section 9 to placate the plantation owners crafting American capitalism through the blood and bodies of African peoples. It actually is not referencing United States dollars (which did not exist yet) but Spanish dollars, the currency used in the Spanish colonies. However Spanish dollars were Alexander Hamilton’s basis for creating the worth of the US dollar. Originally the USD’s value was based in silver, not gold: the Coinage Act set its value at 371 4/16 grain pure silver. The Coinage Act arose from a very simple directive of the Constitution, Article I Section 8: “To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures.” But this provision is going to provide some very interesting problems for us later on.
Picture from washingtontimes.com
Bernie Sanders got 2016 started by a speech in NYC on one of his favorite issues: the regulation of the banking and finance industry. As one of the defenders of Glass-Steagall back when it was being chipped away at in 1999, Sanders is able to position himself as a “Cassandra of Troy” figure to liberals who might otherwise be reluctant about instituting serious financial regulations beyond the Dodd-Frank Act. Along with income inequality, it is an issue which he has a tactical advantage over any of the other presidential candidates as the only one to admit in anyway that the financial industry is what it is:
Greed, fraud, dishonesty and arrogance, these are the words that best describe the reality of Wall Street today.
While I might disagree on fraud, only because most things normal people consider fraud is perfectly legal in the context of mass financial capital accumulation, it is the most honest description of the captains of capitalism by a major presidential candidate since Eugene V. Debs. But the question is what policies will, and more importantly can, Bernie enact as president? Let’s break down the ones he talked about during his speech:
Breaking Up The Too Big To Fail Banks
First, we have his proposal that he will break up the “too big to fail” banks under Section 121 of the Dodd-Frank Act. Legislators tend to refer to laws based on how they were passed in Congress, but this can be somewhat misleading at times: what we really want to look at is the corresponding section of the United States Code, 12 U.S.C. sec. 5331. This provision does indeed set up a system to “break up” the banks, but it is sufficiently complicated as to put into doubt whether a President Sanders could break up even one, let alone all, of the “too big to fail” banks in his first year.
Banks that are governed by this section must hold $50 billion in assets. That sounds like a lot of money, but not in the banking world: the top 38 banks in this country all hold over $50 billion in assets, and to redistribute the assets of giants like the over $1 trillion top four banks would likely push a lot of the other banks into the over $50 billion range. Which isn’t to say that breaking up these banks is impossible: I just want to give a scope of what a large project it is. It is also worth noting that there is a major limit to what the U.S. government can do at all since, as Forbes reports in 2014, not a single U.S. bank is in the top five banks of the world for asset holdings.
Then there needs to be a 2/3 vote of Congress approving the Federal Reserve taking action. With every. Single. Bank. Let’s all keep in mind how much Congress has gotten accomplished in the past ten years. Even after that, the Board of Governors is required to run through alternative solutions before breaking up the bank, particularly:
These provisions tell us an interesting story about the priorities of capitalists. The howling over the free market is contextualized here by what “freedoms” they’re willing to give up before they give up capital accumulation and growth. The Federal Reserve literally telling them what to offer or not offer, and how to offer it, are more palatable than disrupting the notion that the banks should be able to keep the assets they’ve leeched off the work of others. The bank is also provided a hearing before the Board of Governors where they can argue for why no provision should be enforced upon them or why a certain provision would be sufficient.
If none of the alternatives work, the Board of Governors will break up the bank. Now, after going through that whole process in a much shortened form, do we really think it is possible for a President Sanders to use this law in his first year of the presidency, rallying 2/3 of Congress every time, to break up all 38 of these “too big to fail” banks?
President Sanders also wants to reinstate the Glass-Steagall Act, particularly through the bill being pushed for by Elizabeth Warren and John McCain. I talked about how this would be a significant improvement, but with difficulties, towards the end of my post on the Volcker Rule. It is pleasant to see that Sanders shares my view that the attempt by Hillary Clinton and others beholden to big finance to blame this on a few bad apples outside of commercial banking is wrong if not outright deceitful. Sanders states:
And, let’s not kid ourselves. The Federal Reserve and the Treasury Department didn’t just bail out shadow banks [Sanders’s term for noncommercial banks]. As a result of an amendment that I offered to audit the emergency lending activities of the Federal Reserve during the financial crisis, we learned that the Fed provided more than $16 trillion in short-term, low-interest loans to every major financial institution in the country including Citigroup, JP Morgan Chase, Bank of America, Wells Fargo, not to mention large corporations, foreign banks, and foreign central banks throughout the world.
Too Big To Jail
Sanders also wants to go after the bank and finance industry with the criminal law. I am not necessarily opposed to this, but the question is how much will it help and what sort of broader foundation belief does it rest on? Sanders and other progressives are fond of saying that no one or few have been prosecuted for the 2009 recession:
But when it comes to Wall Street executives, some of the wealthiest and most powerful people in this country, whose illegal behavior caused pain and suffering for millions – somehow nothing happens to them. No police record. No jail time. No justice.
This is a bit hyperbolic. Meet U.S. Attorney Preet Bharara, personal pain-in-the-ass to big finance and disliked by many for his “aggressive” tactic of actual prosecuting white collar crimes. He has an 85-1 conviction rate for insider trading alone. He also won the first conviction holding a major commercial bank responsible for causing the financial crisis. The point being that there have been many prosecutions and even some criminal convictions. The question is, has that improved the situation? I would say that is doubtful. The whole purpose of a corporation is to centralize liability outside of an individual’s conduct. While we on the Left love to say that corporations are not people, for the purposes of the law they very much are, except that a corporation cannot be put in prison. And deterrence by criminal prosecution is generally empirically suspect.
Sanders also states that he will reign in Wall Street by making appointments of people not beholden to the interests of the banks and financial institutions. But who does the President appoint in the finance world?
-The Board of Governors is appointed by the President, but appointments are locked in for a term of 14 years and cannot be changed for policy reasons. Not a single Governor’s term expires during the first term of whoever wins the U.S. Presidency. President Obama has requested appointments for the two Board vacancies – unless these are blocked by the Senate, which in the current Senate is certainly possible, there will be no new Board of Governors under the first term of a Sanders presidency.
-The Secretary of the Treasury is appointed by the President and is the most powerful economic position in the executive branch. Notably, Secretary under FDR William H. Woodin was a big force behind the FDIC and Glass-Steagall Act. But President FDR had a far more cooperative Congress than a President Sanders will. Woodin was aided in his work by the fact that he was an industrialist himself, and other capitalists trusted him. Since that time, while proposals have ranged in popularity, Secretaries have almost always been insiders like Donald Regan, Lloyd Bentsten, Larry Summers, Henry Paulson, and Timothy Geithner. Sanders would be under a lot of pressure to also appoint an insider, and not by the Republicans but by fellow Democrats who see it as the only way to gain economic policy victories for their party.
President Sanders Won’t Break The Banks
If Sanders goes on to win the presidency, which is doubtful, his ability to effect change will be limited at best. As powerful as the president is, he is only the head of one of the three branches of government, and the other two have clearly defined themselves as pro-Wall Street. The Carter presidency in particular shows the limits: the economic crisis was triggered by OPEC, an entity outside of U.S. governmental regulation, and Congress’s refusal to cooperate stymied any hopes of Carter implementing the measures needed to cut short the crisis and save his own reputation.
But there is certainly upsides to Sanders discussing these issues during his campaign. There seem to be two major positions on the Left when it comes to this issue: on the more conservative side, the trusting of the process and nominal reforms, and on the more radical side, a disinterest in engaging with or understanding the financial system. While dogmatic reformism will always be insufficient, an outright rejection of any strategy but the complete immediate dissolution of the financial system is the sort of inane self-righteous postulating that Lenin denounced in his “Left-Wing Communism: An Infantile Disorder.” However, the position of endorsement of Sanders’s campaign by Leftists such as Socialist Alternative represents the other side where pragmatism ends and opportunism begins.
In between, we find a different strategy: to use but not depend on the government to regulate or weaken the banks and financial institutions, and to build radical alternatives like credit unions and worker cooperatives as well as imagining and advocating for a future economy that is democratic and socialist. To juggle these is difficult, and those who do will often be derided as riding the fence or being too moderate for some and too radical for others. But this ideology more than any other focuses on the grassroots movement building that has always been the vehicle for the working class to gain power.