Democrats talk a big game, but when you look at some of their voting records, many vote like moderate Republicans (paging Joe Biden). Almost all politicians these days are spineless shills who simply bend whichever way their donors push them, and Democrats like Mark Warner of Virginia are getting ready to repeat the same exact mistakes of the 2008 financial crisis by rolling back a policy signed into law by Barack Obama. This is such an obviously stupid and craven move that the only logical explanation is that these Democrats share the same financial masters as the GOP and President Trump. Per the New York Times:
The most significant attempt to loosen rules imposed in the wake of the 2008 financial crisis is underway in Congress as the Senate looks to pass legislation within the next month that would roll back restrictions on swaths of the finance industry.
Buoyed by their success in rewriting the tax code, the Trump administration and Republican lawmakers have now set their sights on helping the financial industry, which has been engaged in a quiet but concerted push to relax many post-crisis rules and regulatory obligations, particularly for thousands of small- and medium-sized banks.
But unlike the $1.5 trillion tax overhaul, which passed along party lines, the effort to loosen the post-crisis rules is somewhat bipartisan. A group of Senate Democrats has joined Republicans to support legislation that would mark the first major revision of the 2010 Dodd-Frank Act, a signature accomplishment of President Barack Obama that has been deemed “a disaster” by President Trump.
The 2008 financial crisis is something of a dividing line between past and present. It was the culmination of a century of financial malfeasance and a half-century of straight capitulation to the investor class, timed up perfectly with a long capitalist bust cycle (capitalism works thanks to short and long-term boom and bust periods. Short-term busts are recessions that come around every ten years, and long-term busts are near-depressions that come around every hundred years or so).
The biggest banks on the planet got bigger after a change to the SEC’s so-called net-capital rule in 2004. Thanks to this change, Bear Stearns, a company that had existed for 85 years and had $18 billion in cash on it balance sheet, was able to take on so much debt that when it blew up, the company evaporated in a week. Lee Pickard, a former director for the SEC’s trading-and-markets division, wrote in 2008 that “The losses incurred by Bear Stearns and other large broker-dealers [were caused] by inadequate net capital and the lack of constraints on the incurring of debt.”
What this new legislation means is that some Democrats and all Republicans are religiously committed to letting banks leverage themselves to any perverted degree they want, all in the name of gambling (or “investing” as it’s been sold to us by America’s largest legalized casino). “Leverage” is a bank’s ratio of debt to equity (assets minus liabilities equals equity). A higher leveraged ratio means they have more debt and less equity, and a lower ratio means the opposite. Lower is good. Higher is bad. This may sound like a bunch of financial gobbledygook, but here’s a relatable example to demonstrate how this vital regulation works:
— I buy a house for $500,000 and put $100,000 down up front.
— I am now leveraged 5 to 1, a normal amount on a newly purchased house.
— Let’s say I buy a house for $500,000 and only put $100 down.
— I am now leveraged 5,000 to 1, and the picture of my financial wellbeing just got far worse.
— Picture an entire neighborhood of million-dollar homes with only a few hundred dollars paid off on each home. That’s the bipartisan financial future being created right now.
It seems like a normal thought—to want banks to have assets on hand to justify taking on more debts—but that’s just not how America works. The more debt banks can leverage, the more risks they can take and the more (short-term) money they can make. As 2008 demonstrated, if those risks go belly-up, that leverage has harrowing consequences for the rest of the world—but the banks won’t pay for it—we will.
President Obama and Congressional Democrats didn’t address the root of the problems which led to the near-liquidation of the global economy, but they did try to make slight improvements here and there, like Dodd-Frank. It speaks volumes about the priorities of the upper echelon of the Democratic Party that they would work with a historically unpopular president and an even less popular party to pass legislation that helps one of the most unpopular sectors of American society—all in order to roll back one of the signature accomplishments of the last Democratic president. What the hell is happening here? This is pathetic.
Democratic Senator Heidi Heitkamp spoke directly from the GOP playbook, saying “a lot of what was Too Big To Fail under Dodd-Frank became ‘too small to succeed’ because of the onerous regulatory burdens.”
This bill will help banks with over $50 billion in assets, and those with $100 billion to $250 billion—like BB&T and American Express—will also see constraints loosened on how many assets they must have on hand to justify taking on increased debt. These are the supposed “too small to succeed” companies that the “Democratic” Senator from North Dakota is talking about.
Marcus Stanley, the policy director for Americans for Financial Reform—a nonprofit organization who lobbies for tougher regulation of Wall Street—said that “I think it’s going to increase stress on the financial system. It’s going to increase the risk to individual banks and when significant numbers of individual banks go bust, that increases the stress on the system.”
Luckily, there is already public pushback from the left on this titanically horrible idea. Elizabeth Warren said that “this bill increases the risk of another taxpayer bailout, and I will continue to challenge supporters of this bill — from both parties — to explain why they stand on the side of big banks instead of working families.”
This bill is a reminder of the stark divide amongst liberals and the politicians at the top of the Democratic Party. The eleven Democrats siding with President Trump and the GOP are actively aligning themselves against their own party because…banks are over-regulated? Seriously? That’s their entire pitch?
Nobel Prize Winner Joe Stiglitz said of the 2004 move that these Democrats are trying to replicate, “[banks’ leveraged ratios increased] from 12:1 to 30:1, or higher, [allowing the banks] to buy more mortgage-backed securities, inflating the housing bubble in the process.” Remember what happened when that bubble popped? This bill is sowing the seeds for a sequel to that horror.
This is a bad bill backed by bad thinking that is pushed to us in feigned good faith. The Democrats endorsing this bill are not liberals, and they should not be treated as such. Allowing the banks to take on more debt without having assets on hand to pay it down flies in the face of everything we learned about 2008. This is a craven move that surely is going to be rewarded by a payoff from Wall Street to Democratic Senators Heidi Heitkamp, Jon Tester, Joe Donnelly, Mark Warner and any others who believe in their donors more than democracy. Warner especially doesn’t seem to get it, as the told the Times in response to Warren’s repudiation of his awful bill: “Were going to agree to disagree. I don’t think this is going to split open the kind of unity you’ve seen in the Democratic Party.”
Working with Donald freaking Trump to help the banks isn’t going to cause a split in the Democratic Party? Did Warner just wake up from a decades-long coma? Just 33% of Democrats say that banks and other financial institutions have a positive impact on the country—and this isn’t some arcane rule that we don’t quite understand. This is literally a repeat of a policy which has already proven to have failed. Mark Warner’s assertion is not grounded in any empirical evidence, and it is simply the political version of waving your hands and saying, “these are not the droids you are looking for.”
The problem for politicians like Warner is that we know the jig is up, and that people like him who sit on the banking committee don’t do it to benefit the rest of us. It’s just another paycheck for them. If Mark Warner, Heidi Heitkamp and other Democrats want to ally themselves with Donald Trump and the Republican Party in order to pass legislation that only makes the banks richer and is more likely to tank the economy, then it is our job as liberals to communicate to them in their next primary that they are no longer welcome in the Democratic Party.
Jacob Weindling is a staff writer for Paste politics. Follow him on Twitter at @Jakeweindling.