Froma Harrop: Unzipping the Warren package
They like her style. Many liberals adore Elizabeth Warren’s populist passion for denouncing predatory conduct by Wall Street — and her linking it to growing income inequality.
Though the senator from Massachusetts insists she’s not running for president, her fan base has set up camp in Iowa, fueling the fires for a Warren candidacy. They want her to challenge Hillary Clinton, a likely contender viewed as more lenient toward the captains of finance.
Style goes a long way, but not all the way. So let’s unzip the Warren package and evaluate the components. When you do that, you find a strange thing. The stands that have anointed Warren as the “soul of the Democratic Party” are not particularly liberal. Some are profoundly conservative, in the traditional sense of “conservative” — that is, letting markets determine winners and losers in business.
We only think of these Wall Street critiques as liberal because Republicans — helped by no few Democrats — have confused the public into thinking that whatever aids in the building of private fortunes is somehow conservative and pro-market. That would include taxpayer subsidies, which they try to keep hidden by complexity.
The truth is that the Wall Street formula for success is not so much taking risks and reaping the rewards if one is clever. It’s by cleverly moving the risks onto the taxpayers’ shoulders. Recall how government guarantees on junky mortgages let the financial industry reap upfront profits while leaving taxpayers with the cleanup when the real estate bubble splattered.
The Dodd-Frank reforms attempted to shield taxpayers from such bailouts in the future. Congress is now undermining them. We refer to the recently passed spending bill, which lets federally insured banks engage in certain risky derivatives trading. Just its name — the “swaps push-out” provision — is enough to make the average eye glaze, which is exactly what the authors want.
Warren led the protest against this meddling with market forces, which, in our bizarro world of political discourse, makes her a liberal lioness. Conservatives are the ones who’ve argued that we don’t need many regulations. The markets, they say, will discipline speculators placing bad bets. But what the “conservatives” have just done is protect banks from such punishment — and, should a deal go south, punish the taxpayers instead.
The “swaps push-out” provision comes courtesy of Rep. Kevin Yoder. The Kansas Republican didn’t personally compose this weakening of the Dodd-Frank rule, called “Prohibition Against Federal Government Bailouts of Swaps Entities.” He let Citigroup do it and simply transferred the banking giant’s handiwork into the spending bill.
As Yoder framed the issue, “this is about the farmer in your district who wants to get a loan.”
Aw, shucks. Yep, oil companies and agribusiness save money on their hedging activities when taxpayers take on the risks. How naive of us to think the cost of managing their risks should be their business expense.
A less useful part of the Warren package is the senator’s tendency to blame Wall Street for demanding favors from Congress. Of course the financial industry tries to get what it can from Washington. It should be the business of Congress to say, “Sorry. You can’t have.”
There are principled conservatives, including Federal Reserve officials, who have seen the provision as the ruse it is to keep taxpayers on the hook for speculators’ mistakes. But most of the Republican-controlled Congress is neither principled nor conservative.
That leaves liberals to speak the obvious truth that — in Sen. Sherrod Brown’s words — the provision will “open the door to future bailouts funded by American taxpayers.” Funny how liberals like Warren (and Brown) have become the taxpayers’ real defenders and so few people get it.
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