Just a couple weeks ago I posted this quote from Elizabeth Warren on my facebook page: "The people on Wall Street broke this country, and they did it one lousy mortgage at a time. It happened more than three years ago, and there has been no real accountability, and there has been no real effort to fix it.” I was challenged by a friend who claimed that the banking system should not be singled out for the economic collapse. I explained that I agreed there were multiple causes, but that part of the reason I appreciate Warren’s language is that the bank’s role in this has been downplayed, and in fact the bank’s have managed to right their ship with massive taxpayer funding and are now back making enormous profit. In light of all that, I support Warren’s focus on the banks.I thought of that exchange when I read this portion of the Vatican’s new statement on the global financial crisis that I blogged about last night:
In recent decades, it was the banks that extended credit, which generated money, which in turn sought a further expansion of credit. In this way, the economic system was driven towards an inflationary spiral that inevitably encountered a limit in the risk that credit institutions could accept. They faced the ultimate danger of bankruptcy, with negative consequences for the entire economic and financial system…A liberalist approach, unsympathetic towards public intervention in the markets, chose to allow an important international financial institution to fall into bankruptcy, on the assumption that this would contain the crisis and its effects. Unfortunately, this spawned a widespread lack of confidence and a sudden change in attitudes. Various public interventions of enormous scope (more than 20% of gross national product) were urgently requested in order to stem the negative effects that could have overwhelmed the entire international financial system.
The consequences for the real economy, what with grave difficulties in some sectors – first of all, construction – and wide distribution of unfavourable forecasts, have generated a negative trend in production and international trade with very serious repercussions for employment as well as other effects that have probably not yet had their full impact. The costs are extremely onerous for millions in the developed countries, but also and above all for billions in the developing ones.
The Vatican’s analysis, rooted in over a century of Catholic Social Teaching, was released by the Pontifical Council for Justice and Peace at a press conference given by the Council’s President, Cardinal Peter Turkson, and its Secretary Bishop Mario Toso.
Before people dismiss Warren and Cardinal Turkson as simplistic, consider the way in which two of America’s leading politicians over the last 20 years, one a Republican and one a Democrat, have operated with regards to banks and the broader financial sector.
First the Republican, former Senator Phil Gramm of Texas:
Back in 1950 in Columbus, Ga., a young nurse working double shifts to support her three children and disabled husband managed to buy a modest bungalow on a street called Dogwood Avenue.
Phil Gramm, the former United States senator, often told that story of how his mother acquired his childhood home. Considered something of a risk, she took out a mortgage with relatively high interest rates that he likened to today’s subprime loans.
A fierce opponent of government intervention in the marketplace, Mr. Gramm, a Republican from Texas, recalled the episode during a 2001 Senate debate over a measure to curb predatory lending. What some view as exploitive, he argued, others see as a gift.
“Some people look at subprime lending and see evil. I look at subprime lending and I see the American dream in action,” he said. “My mother lived it as a result of a finance company making a mortgage loan that a bank would not make.”
On Capitol Hill, Mr. Gramm became the most effective proponent of deregulation in a generation, by dint of his expertise (a Ph.D in economics), free-market ideology, perch on the Senate banking committee and force of personality (a writer in Texas once called him “a snapping turtle”). And in one remarkable stretch from 1999 to 2001, he pushed laws and promoted policies that he says unshackled businesses from needless restraints but his critics charge significantly contributed to the financial crisis that has rattled the nation.
Second, Senator Charles Schumer, New York:
As New York’s senior senator, Schumer has represented lower Manhattan, the Mount Olympus of the nation’s finance sector, since 1999, and has had a say in every major piece of legislation affecting the industry over the past decade, say Senate sources.
Contributions from securities and investment firms to the DSCC nearly tripled during Schumer’s tenure as chairman.
Securities and investment firms gave $5.7 million to the DSCC when it was headed by former Sen. Jon Corzine (D-N.J.) in the 2004 election cycle.
These firms gave nearly $15 million last cycle under Schumer’s watch. In 2007 and 2008, Goldman Sachs, JPMorgan Chase, Fortress Investment Group and Citigroup ranked among the DSCC’s top 20 donors, according to the Center for Responsive Politics.
Three of those firms, Goldman, JPMorgan and Citigroup, have accepted TARP funds. (From The Hill.)
Over the course of his career, Schumer has raised half a million dollars from Goldman Sachs – and nearly as much from Citigroup, Morgan Stanley and JPMorgan Chase. Between 1989 and 2010, according to the nonpartisan Center for Responsive Politics, Schumer took in nearly $9 million from the entire securities and investment industry, a haul that helped him become one of the most powerful politicians in America, a deep-pocketed kingmaker with unrivalled connections among the wealthiest players on Wall Street.
The seeming contradiction between Schumer’s public posture and his closed-door fundraising efforts had gone little-noticed by the general public before the financial crisis. But when the securities and investment industry was thrust into chaos – and the spotlight – in 2008, Schumer’s Wall Street ties suddenly became a political liability.
After all, Schumer’s biggest donors were the very folks who President Obama would later, in response to public anger, deem “fat cat bankers.” In the years leading up to the crisis, Schumer had been pushed hard to deregulate the financial industry; as the New York Times documented in the wake of the crisis, he had repeatedly protected the industry from oversight and helped companies avoid billions of dollars in taxes and fees. Schumer didn’t turn his back on his allies. He was one of the major drivers behind passage of the $700 billion bank bailout approved by Congress in the midst of the crisis. The bailout, which spawned the conservative Tea Party movement and was hugely unpopular with the left, was a literal lifesaver for the financial services industry. (CBS News story)
The powerful interests that Warren and the Vatican rail against are reflected in the senatorial careers of Gramm and Schumer. The picture of the Senate under a cozy bipartisan agreement to favor the financial sector is confirmed by one of the few Senators honest enough to confront it, Jim Webb the Virginia Democrat.
Webb has pushed for a onetime windfall profits tax on Wall Street's record bonuses..."I couldn't even get a vote," Webb says. "And it wasn't because of the Republicans. I mean they obviously weren't going to vote for it. But I got so much froth from Democrats saying that any vote like that was going to screw up fundraising. People look up say, what's the difference between these two parties? Neither of them is really going to take on Wall Street. If they don't have the guts to take them on, and they've got all these other programs that exclude me, well to hell with them. I'm going to vote for the other people who can at least satisfy me on other issues, like abortion. Screw you guys. I understand that mindset." (Real Clear Politics)
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