Conservative intransigence — on issues as wide-ranging as appointing a permanent nominee for the Federal Housing and Finance Authority (FHFA) to implementing key components of the Dodd Frank Financial Reform law — prompted Sen. Harry Reid and Senate Democrats to change the Senate rules around cloture.
Previously requiring a threshold of 60 to proceed with nominations, Reid and Co. lowered the threshold to a simple majority. This will allow several campaigns that the Alliance and our affiliates have been working on to finally reach completion.
First, and most critically, is the confirmation of Rep. Mel Watt (D-N.C.) to be the permanent head of FHFA. This position has been held for six years by a “temporary” replacement, Ed DeMarco, who was appointed by President Bush. While at the helm, DeMarco has been a vocal and vehement opponent to key policy proposals that would both help homeowners and jump-start the economy. Most notably is his opposition to widespread principal reduction. Based on this report the Alliance released with the New Bottom Line, principal reduction is the single best thing we can do to move the housing market in the right direction.
In fact, due to DeMarco’s opposition, organizations like Washington CAN! have begun exploring local principal reduction strategies through the innovative use of eminent domain to seize mortgages. In response, FHFA, under DeMarco, dug in its heels further and threatened to sue cities that write down mortgages to fair market value through eminent domain.
The second of two key federal banking issues to a take a huge step forward Tuesday was the release of the Volcker Rule. Beginning in 2010, the Main Street Alliance provided testimony and mobilized members in key districts to weigh in on this key piece of legislation. The Volcker Rule is named after former Chairman of the Federal Reserve Paul Volcker. The rule is designed to end the risky and conflict-laden practice by banks called proprietary trading, in which a bank trades in risky Wall Street derivatives not for the gain of their customers, but for the direct enrichment of the company. These bets are particularly troublesome for banks that have FDIC-insured deposits.
The law, unveiled yesterday after years of delay by the banks, is set to go into effect in 2015. Treasury Secretary Jack Lew told reporters yesterday that this bill is designed to ensure there isn’t a repeat of the “London Whale” fiasco, in which JP Morgan Chase lost more than $6 Billion in risky proprietary deals. This legislation is often viewed as a “Glass-Steagall light,” that is that it begins to untangle the depository banks from investment banking.
This interconnectedness is believed to be one of the key causes of the financial crash in 2008. This rule, however, is just a step toward recreating the firewall between these two types of banks. Last summer, the “21st Century Glass-Steagall” bill was introduced by Sens. Elizabeth Warren, John McCain, Angus King and Maria Cantwell. As part of the kickoff, the Main Street Alliance hosted a briefing of 75 small business owners in D.C. with economist and MIT Professor Simon Johnson, Vice Chairman of the FDIC Thomas Hoenig, and Sen. Sherrod Brown.
The Volcker Rule is a step forward toward ending “too big to fail,” but it isn’t a panacea. Even more importantly will be monitoring to ensure the regulators enforce this rule to the intent. There is legitimate critique of this law as being loophole-laden, but only time will tell how stringent it will be. Regardless, we need to continue to agitate and organize to advance the 21st Century Glass-Steagall bill. We need to continue to pressure municipalities, NGOs, churches and pensions to move their money to local institutions. We need to borrow money from locally owned institutions.
In short, we need to continue to advance and lift up alternatives to the status quo that begin to erode the monopoly the “too big to fail” banks hold, while simultaneously working on policies that shift the balance of power away from these Goliaths.