GOP Strategist Perversely Plans to Fight Wall St. Reform as ‘Bailout’
Political consultant Frank Luntz at a panel discussion of ‘Poliwood’ during the 2009 Tribeca Film Festival in May 2009 in New York City. (Photo by Neilson Barnard/Getty Images)
By Roger Bybee
In a capitalist society, Wall Street investment banks are supposed to function as sources of capital for productive investment.
But Wall Street has largely been restructured as Las Vegas on the Hudson, a giant casino where the object is to maximize profits through investments that are no different than risky bets. The productive side of the U.S. economy continues to starve from lack of investment in U.S. jobs. (America experienced zero job growth throughot the last 10 years, as I wrote here last week.)
One might expect that by now, the bankers would have finally recognized with horror that their gambling habits nearly blew up the U.S. economy, and that a new explosion could be triggered as they cling to the status quo. But one’s expectations of such repentance would be very, very wrong.
It turns out that the bankers are fiercely determined to maintain the current weak rules in place, and to keep the casino running full-blast. So the financial industry is launching a massive assault on the legislation now in the Senate to restrict derivatives and other risky financial instruments, create a strong consumer finical protection agency, and set up a massive program to prevent bailouts of banks considered too big to fail.
MASSIVE INFLUX OF LOBBYISTS
The disfunctionality of Wall Street and need for reform could not be more obvious. Roger Lowenstein, hardly a radical, describes how Goldman Sachs now operates in the New York Times:
For much of Wall Street, capital-raising is now a sideshow. At Goldman, trading and investing for the firm’s account produced 76 percent of revenue last year. Investment banking, which raises capital for productive enterprise, accounted for a mere 11 percent. [Emphasis added] Other than that, it could have been a hedge fund.
With Democrats bearing nearly the entire political taint of the Wall Street bailout of Goldman, AIG, etc. that was actually put in place by George W. "free market ueber alles" Bush, the Dems are realizing that they have to take some action to create some measure of distance from Wall Street.
Congressional Democrats are thus insisting on somewhat sterner conditions in financial reform packages passed in the House under Banking Chairman Barney Frank’s leadership and a weaker version pushed in the Senate by Christopher Dodd. The New York Times describes the massive campaign by Wall Street and other interest groups:
By the end of last year, lobbyists from some 400 businesses and groups, including bankers, beer makers, cruise ship operators and grocery stores, had registered with Congress to weigh in on the regulatory reform, according to data analyzed by the Center for Public Integrity, a research and advocacy group in Washington. That number is expected to climb when new lobbying reports are filed next month.
In the last decade, the financial sector has spent more money than any other industry to influence Washington policy — more than $3.9 billion, according to the Center for Responsive Politics.
The Wall Street boys have created such a massive presence in the Capitol that community bankers, who are oriented toward mortgages, car loans, and small-business capital, find themselves drowning in the deluge of financial lobbyists. As the Times reports:
Camden R. Fine, president of the Independent Community Bankers of America, an association that spent about $4.75 million last year on federal lobbying, said his organization was outmatched in finances and resources in the debate by Wall Street’s representatives in Washington.
“Literally, when our guys are walking into a key senator’s office” to plead their case on the legislation, “they can see four or five Wall Street lobbyists walking out, and that can be a little intimidating.”
Riding in to protect the casino economy are Republican strategist Frank Luntz, the overwhelming majority of GOP congressmen, and a vast legion of lobbyists.
Supplying the rhetorical ammunition to stymie financial regulation is Luntz, whom the GOP counts on for "war is peace"-style inversions of reality. Luntz, you will recall, was the ventriloquist behind the Republican sock-puppets’ adoption of the "healthcare reform is a government takeover" line.
Now Luntz has urged Republicans to attack the financial legislation not in traditional Republican terms as an assault on "free markets," but to adopt pseudo-populist language and attack the regulations essentially from the left, as a special-interest "bailout." Sam Stein of Huffington Post astutely summarizes:
In Republican circles Luntz’s words, which have helped the party win the message wars over health care and other legislative battles, are often treated as gospel. Already, some of the advice he’s offered on regulatory reform has found its way into the political discourse — with a proposed Consumer Financial Protection Agency seemingly on life support under Republican objections.
USING SMALL BUSINESS AS ‘HUMAN SHIELD‘
Luntz also recommends using the "human shield" technique, whereby progressives are warned that their efforts to target big banks and corporations will actually harm innocent small businesses, as Stein outlines:
Owning a small business is part of the American Dream and Congress should make it easier to be an entrepreneur," wrote Luntz. "But the Financial Reform bill and the creation of the CFPA [Consumer Finanical Protection Agency] makes it harder to be a small business owner because it will choke off credit options to small business owners."
Luntz is confident he has a winning strategy, says Stein:
In addition to tying regulatory reform to a massive government takeover, Luntz’s memo includes several other data points and messaging suggestions as a blue print for the legislation’s defeat. Opponents, he writes, would be well served to link the package to the financial industry bailout (which, it should be noted, is fundamentally not part of the legislation). According to accompanying polling data, 52 percent of voters said they would be "much less likely" to vote for their member of Congress if they voted for a financial reform bill that contained a fund to bail out banks and Wall Street.
GIFT TO PROGRESSIVES?
As cynical and hypocritical as the Luntz strategy may be, it could very well prove to be a gift to progressives in the Democratic Party who want to take a strong stance against Wall Street.
If the Republicans choose to attack financial reforms curbing Wall Street as a supposed "bailout" of special interests, then the Democrats will be under more pressure to distinguish their policies from those of the Republicans.
In case you think that timidity on financial reform among Obama’s leading policy-makers is not a problem, consider the mindset of Treasury Secretary Timothy Geithner. As Roger Lowenstein explains, economist James Tobin’s proposal for a "transfer tax" on financial transactions was designed to throw "sand in the gears" of currency trading and other non-productive trades:
The idea of a transfer tax, on financial trading generally, has resurfaced. Euroepan leaders, like Gordon Brown in England, are in favor. Timothy Geithner has resisted the idea. The idea of a frictionless market is so instinctual that we have lost sight of the peril that comes with speed.
Geithner’s bottomless faith in the "frictionless" functioning of the market reveals precisely how distant he and other top Democratic economic policy-makers are from the enormous frictions plaguing jobless workers and their families.