The Game Plan. Part 2

In the first article in this series I talked about ways to pass health care reform. In this article I am going to focus on financial reforms. If there is one thing people dislike more than politicians right now, its banks, specifically big banks. People feel, and rightly so, that they have been taken advantage of. They feel that the banks were basically gambling with other peoples money and when they lost they came to the taxpayers, they same people who’s money they had been gambling with, and asked for enormous loans to stave off disaster. People want to know that it is safe to deal with banks again. They want to know that when they deposit their money into Bank of America, or Citi Bank et. al. that it will be there, earning interest and not used to make his risk investments that can go disastrously wrong and in some cases cost people their retirements or college funds. 

            Step one in this process will involve the resurrection of a Depression era classic, the Banking Act of 1933, otherwise known as the Glass – Steagall Act. This act was a response the catastrophic collapse of the financial following the stock market crash of 1929. Then as now, banks housed all of their operations under one roof and were making risky investments in high risk assets. When you make an investment like that the reward can be great, but there is the risk of losing the entire principal, or the principal and owing more than the original cost of the investment.  This is where Glass – Steagall comes in. This act basically says that Investment Banks and Commercial Banks must be, by law, separate entities. This would mean that Bank of America, as an example, would have to split its investment operations away from the part of the bank that handles commercial banking i.e. Savings, Credit Lending, Loans, Mortgages etc.  What this act will do is not break up the big banks as some have suggested, but rather break up their operations. Bank of America may still operate as an investment bank under the B of A name but that operation and the assets tied to it must remain separate from the commercial operations of the bank. In essence what this will do is create a firewall with in the banks. If in the future there were another collapse triggered by investments in risky assets only Investment Bank operations would be hit. The only money lost would be money that was placed there by people who understood that there was a risk of losing on those investments.

            Passing this act will probably be one of the easiest tasks this congress will take on. Senators McCain (R- AZ) and Cantwell (D-WA) have proposed the re-enactment of this act in the Senate, that happening in mid-December. This idea has also received bi- partisan support in the House of Representatives. Interest in the regulations contained in this act that the EU is considering adopting regulations on the European banking industry based on this act.

            Step two is where Democrats get to be Democrats and get back to their roots fighting for the little guy, the working man, and giving him the muscle to take on the establishment. Regulating banks and the financial sector to avoid the freewheeling gambling that got us into this mess in the first place is a good start.  What the Democratic Party needs to do next is make sure that when workers, after 25, 30, 35 or more years of dedicated work are ready for retirement their retirement plans are protected. This starts with a change in the way Social Security is operated. Under the current system Social Security makes payroll deductions up to $107,000 a year. After that, even if someone earns more than $107K deductions are capped at that level. Let’s say someone earns $250K a year. Social Security makes deductions on there pay up to $107K, after that they pay nothing on their income up to their maximum pay. The pay out from Social Security however, is calculated on their highest earning years. The fix here is simple. Remove the $107K cap on Social Security deductions so that people pay deductions based on their entire incomes. The majority of middle class workers who earn well below $100K a year, will see no increase in the amount they pay into the system, but with the increased cash flow into the system they will, in all likelihood see increased benefits. The same will be true of those earning at or above the $107K level. 

            Passage of this measure will require the Democrats to stop chasing the notion of bi-partisanship and start, for lack of a better term, as Norman Goldman says, playing smash mouth football. I say this in light of the fact that in the Senate, their was wide spread support for a bill that would have created a deficit reduction task force. This would have been a committee that would have had legislative teeth, and it was supported by a great many Democrats and Republicans. I looked at the legislation, I happen to think it was a very good idea. The President too, thought this was a good idea, however, when he openly voiced his support for this measure, seven Republican members who were signed on to support this bill and in some cases were co-sponsors, flip-flopped and voted no, killing the legislation in the Senate. That is why I say it’s time to stop playing nice and start staking out positions that force Republicans to take a position and rhetorically defend policy positions that put them at odds with what the middle class wants and needs. In this case they would have to argue that people who make over $107K would should not have to pay into Social Security on their full salary like the average middle class worker does. The Republicans would also be in a position of arguing against the insures solvency of Social Security in the future with an increased revenue flow, and arguing against increased benefits that will most likely be feasible because of that increased revenue. 

            Step number three is where Democrats really get to put the Republicans on the ropes and start landing body blows. This is where we make sure that when someone decides to call it a career and draw on the pension that they have been paying into while giving yours of service to a company that it is there waiting for them. This would require passing legislation that would require all companies to insure their pension plans with the FDIC.  The theory here is simple. If my checking account held at even the smallest bank is good enough to be insured up to $100K with the FDIC, and an IRA is good enough to be insured at $250K than so is my pension. It is worth noting that since the FDIC was founded as part of the above-mentioned Banking Act of 1933, no one penny of depositor money has been lost.  The only difference will be that instead of a bank paying into the system to be covered by the FDIC it will be private companies that are using that available insurance to protect the pension plans of their employs. This protection would be in case, like we have seen in the past there is a sudden and dramatic drop in the markets, which many pension plans are invested in, in order to generate more revenue in the plan.

            As part of this step the Democrats also need to address corporate bankruptcy laws. These laws need to be reworked so that if a company needs to file for bankruptcy protection pension plans are exempt. Workers who have given a company good a faithful service for years, long enough to be vested in a retirement plan should not have to suffer and lose that plan to the companies creditors because the management of that company was not wise with its investments, or did not produce and properly market a product that the people wanted.  Take Chrysler for example. It’s not the fault of the UAW members in the factories, or the secretaries in the home offices, or the staff accountants, or the people in Chrysler Financial that the company, year after year produced cars that the people simply did not like and did not want. All of the people that worked for that company, from the ones who built the cars, to the ones who processed the loans for those cars gave good service, some spending their entire careers their. When that happens, but the company fails these good, hard working people should not lose the pension they have paid into for years because a company needs to satisfy its creditors. All other company assets can be left on the table, but pensions should be declared, by law, off limits, exempt from bankruptcy proceedings.

            Both of these measures mean placing Republicans in untenable positions. They will either need to take the position of the corporation and against the working men and women of this country by saying that their pension plan should not be afforded the same protection as every Checking, Savings, Money Market, CD and IRA at every affiliated bank with the FDIC.  It will also place them in a position of having to argue that pension plans should be assets that companies should use to satisfy creditors in the case of bankruptcy regardless of how it effects the people who are counting on them for their retirement. In short, as I argues in the first article in this series, Democrats need to win a battle of maneuver, placing Republicans in positions where they will be taking the side of corporations over people and having to defend those positions at election time, or agreeing with the Democrats and saying, yes, I agreed with the other side because these protections look out for the people who punch a time clock. 

This article first published  by John Festa on the Left Turn Blog. See it, and others at johnfesta.wordpress.com.

Tagged as: Financial Reform

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