The New Girls’ Club
Remember the Old Boys’ Club…? The boring, cranky, devious one that controls the banks, the economy and most of our wealth creation and money supply from behind the scenes? The one where nearly every key position in government is occupied by an Old Boy? Yes, that one.
Well, there are still a few lifetime members of the OBC firmly entrenched in the Federal Reserve (Grandpa Ben), and the Treasury (Timmy G and Larrykins) who continue to give all our money away to their ever-popular clubby friends.
These are the same old boy club members who along with ex-Goldman partner and Treasury Secretary Robert Rubin gave the store away to the big banks in 1999 with the repeal of the Glass-Steagall Act. Ordinary banks like Citigroup could now legally play roulette with government guaranteed deposits. OB Robert Rubin thought it was such a great idea he took a job with Citibank only weeks after leaving the Treasury.
These same old boys, Summers, Greenspan, Geithner with OB Senator Phil Gramm (now a lobbyist for Swiss Bank UBS) the very next year pushed through the ill-fated Commodities Futures Modernization Act - otherwise known as Derivatives-Are-Born-Free Act. This little understood law overturned a century old rule that had prevented unregulated market bets since the Panic of 1907. Now all bets were off…
Meanwhile back at the Securities and Exchange Commission, the agency that was supposed to be supervising the gladiator games, another group of old boys put the final nail in the coffin. In early 2004, Chairman of the SEC William Donaldson (former head of securities giant DLJ) got together with a few good friends, card-carrying OBC members and business colleagues, the heads of the five largest investment banks in the industry including soon-to-be Treasury Secretary Hank Paulson. Together the six overturned a law that stood on the books for three decades limiting the amount of risky assets the nation’s largest securities firms could hold. In a 45 minute meeting, the barrier between 12 to 1 capital to debt ratios and all hell breaking loose was removed.
Unlimited leverage became official: the biggest banks no longer had to follow “the net capital rule” and could use their “own judgment” for how much risk to take with other people’s money. Within four short years, the five firms would triple and quadruple their risk levels to the point where three of the five firms collapsed along with the United States banking system.
Who benefited from merging boring deposit-taking banking and casino trading by dismantling Glass-Steagall? Citibank, JP Morgan Chase, Bank of America, Wells Fargo…
Who benefited from under-the-radar derivative anarchy?
AIG, Goldman Sachs, Morgan Stanley, Deutsche Bank, UBS, big banks, the hedge fund and private equity community…
Who benefited from reversing the capital restrictions on risk for big banks?
Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers, Bear Stearns, JPMorgan Chase, Citibank, Bank of America, Wells Fargo…
I think you know how the roller-coaster fun ride ended.
It is clear who did NOT benefit from the free-for-all deregulation of banks and the refusal to create a derivatives exchange…The working public, small business, you and me. In fact it was the elimination of these three important legal statutes that pushed the American financial system to the brink of collapse in less than a decade. Are you getting the picture? In the words of Oliver Hardy, Old Boys’ Club of America: Another fine mess you’ve gotten us into.
And now for something completely different. The All New Girls’ Club.
Move over boys. The girls are back in town.
Democracy and Law
The recent nominee for Supreme Court Elena Kagan summed up the need for law in the preservation of freedom. “Law matters because it keeps us safe, because it protects our most fundamental rights and freedoms, and because it is the foundation of our democracy,” she said. These words could be easily translated to the current debate on financial reform. Freedom only functions when the laws protect everyone. Keeping our nation’s financial system safe from rape, plunder, and pillage is the ultimate goal for financial reform.
Out of Washington this past decade, little of our government’s actions made rational sense. Economic anarchy was called “free-enterprise” and “reform” was equated with more war and less public safety. Same old story as the old boys kept their stranglehold on the gov and our economy.
Back in the old days (late 20th century America) one voice of reason rang out-the former head of the Commodity Futures Trading Commission, Brooksley Born. In 1998, Born singlehandedly stood up to the firmly entrenched old boy network of Greenspan, Summers, Rubin, Geithner and SEC Chairman Arthur Levitt and fought hard to regulate lethal derivatives citing the risk of unmitigated disaster. Unfortunately, the irrational voices of the old boys drowned her out and her warnings of financial crisis came true.
Sitting on the Financial Crisis Inquiry Commission a few weeks ago, Born had her chance to chastise the champion of free-for-all enterprise and economic recklessness, Alan Greenspan. She told the old boy that he “failed to prevent the housing bubble, failed to prevent the predatory lending scandal, failed to prevent the activities that would bring the financial system to the verge of collapse…You failed to prevent many of our banks from consolidating and growing to a size that are now too big or too interconnected to fail.”
Wow! What a woman. It was almost worth the painful two years of financial woe to see Greenspan become visibly angry and categorically deny what is already documented fact. Ding dong “the Oracle” is dead.
In a sea of male bankers, another woman’s wise words stand-out. Sheila Bair, Chairwoman of the FDIC and long an advocate of safe banking and distressed homeowner assistance, has the odd distinction of being one of the few banking industry regulators in favor of a Consumer Financial Protection Agency. Such an agency “would help community banks, not hurt them,” she claimed in direct opposition to her old boy colleagues. In accepting the Profile in Courage Award alongside Brooksley Born, Bair said, “I’m particularly pleased to be joining …other female awardees who stood up when some of their male counterparts failed to act, or worse, actively fought them.”
Next up in the House of Feminine Wisdom is consumer rights champion Elizabeth Warren, Harvard Law Professor and Chairwoman of the Congressional Oversight Panel. As head of the panel, Warren is a fierce critic of how the bailout money was allocated by the Fed without condition. She has become the nation’s most vocal and toughest advocate for a Consumer Financial Protection Agency.
Warren summed up her fight for reform with this, “It’s ultimately about protecting the whole economy. When we destabilize American families; when we sell them terrible products that explode in their faces. That in turn destabilizes the entire economy. These products that were gonna offer these huge, huge profits weren’t just lousy deals for consumers. They were lousy deals for investors. They were lousy deals for pension funds. They were lousy deals for the worldwide economy.”
Wall Street: Fix this Mess You Made
Two weeks ago as I stood outside New York’s City Hall listening to angry protestors chant, “Wall Street fix this mess you made.” I realized that only our lawmakers can fix the mess they made. A financial system without laws protecting the innocent constitutes economic anarchy… And anarchy is a dangerous thing. It has been an expensive and painful lesson for us as a nation and global community. What does the “free market” really mean? What keeps a society truly free from tyranny after all? Laws can create tyranny or protect us from it - the choice is ours.
The only way to safeguard our economic system for consumers, financial professionals, investors, as well as for bankers is to vigorously regulate the markets. Limiting leverage with capital and debt restrictions, reining in risk of deposit-taking banking institutions (separation of Bank and State), removing conflict of interest from official regulating and rating agencies (eliminate regulator - ratings shopping), and creating a consumer financial protection agency in the same way we oversee every other product on the market from food (FDA) to children’s toys. These changes are basic and reasonable responses to maintain economic freedom, not obscure it.
The Old Boys’ Club has launched a battery of lobbyists who are fighting hard against these reforms and the women in power are pushing back.
At a recent evening celebrating women leaders, California veteran Senator Diane Feinstein claimed that, “If Congress were all women, we would have financial reform by now.” That may or may not be true. Yet there is something to be said for the healing quality of women. The women in government right now seem intent on fixing the problem, not denying it exists or throwing more wood on the fire.
Feinstein pointed out that 18 years ago when she was first elected to the Senate, there were only two females in that body of Congress. Now there are 17 female U.S. Senators. That is an increase of representation from 4% to 34% in a decade and half. Every election we move closer to shattering the glass ceiling held firmly in place by the OBC that has dominated our nation’s financial system for over two centuries.
Feinstein, Olympia Snowe (R-Me), Susan Collins (R-Me), Barbara Boxer (D-Ca), Kirsten Gillibrand (D-NY), Kay Hagen (D-NC), and Nancy Pelosi (D-Ca) are all leaders on comprehensive financial reform. Margot Dorfman, CEO of the U.S. Women’s Chamber of Commerce took the opposite view on financial reform from her male counterparts at the big business lobby thinly disguised as the U.S. Chamber of Commerce. The USCC is campaigning against the creation of a consumer financial protection agency. Dorfman declared her support for the agency and for “America’s small businesses and communities” by urging Congress to “pass comprehensive financial reform.”
Additionally, Mary Shapiro as head of the new and improved SEC, Bair, Born, and Warren -embody a newly established feminine wisdom that is moving the ineffectual and outdated Old Boys’ Club out of the way.
Women are healers by nature. We are mothers, sisters, daughters, problem solvers, and leaders. The time has come for the feminization of our politics and our economy. Our nation needs to be healed. That’s not a job for the timid or delicate. It’s not for sissies. It is for the strong, powerful, and wise. The way women really are.
The logic of the Old Boys’ Club represented by the ancient Greenspan and the not-so-ancient 50 year old males controlling the nation’s largest financial institutions has rapidly dissipated by its own self-defeating actions.
As for me, I think the patriarchs in the tired dreary old boys’ network had their shot and screwed things up just fine - now it is time for the ladies to take their turn and see if they can clean up the mess the boys made. For my money, I put my trust and faith in the New Girls’ Club.
We have come a long way, haven’t we?
Monika Mitchell - Executive Director firstname.lastname@example.org