by Zach Carter, Media Consortium blogger

Two critical Wall Street reforms, once declared dead by U.S. megabanks, are suddenly close to Congressional approval. As the House and Senate iron out the differences between their financial overhauls, it now appears that lawmakers are finally willing to ban banks from gambling with taxpayer money by implementing a strong Volcker Rule, and to end taxpayer subsidies for risky derivatives operations.

These reforms will help stabilize the U.S. economy by clamping down on the naked speculation the drove financial markets off a cliff in 2008. But while lawmakers are finally waking up to the economic and political necessity of strong Wall Street reforms, conservatives have blocked key efforts to ease unemployment. President Barack Obama also appears ready to surrender to an assault on Social Security later this year.

Derivative of what?

Lawmakers now have the political momentum to end taxpayer subsidies for the trading of derivatives, as I emphasize for AlterNet. These risky businesses helped sink big banks and jeopardize the broader economy in 2008. These reforms would be a giant step towards reclaiming the U.S. economy for ordinary citizens, and they would fly in the face of opposition from both Wall Street and Treasury Secretary Timothy Geithner.

Derivatives are the infamous financial weapons of mass destruction that brought down AIG and Enron. Many of the biggest scandals arising from the current financial crisis were derivatives operations, from Lehman Brothers’ accounting gimmicks to the SEC’s fraud suit against Goldman Sachs. By allowing traditional commercial banks to sell derivatives, the U.S. government actually subsidizes the entire market, encouraging speculation and ramping up risks across the economy.

Wall Street’s political clout stems from its derivatives machinations and its “proprietary trading,” otherwise known as gambling for their own accounts. Both provide big, easy profits that banks convert to bonuses, lobbying and political contributions.

Ending the subsidies for derivatives, and implementing a strong Volcker Rule to ban outright bank gambling would be the first major blow to Wall Street’s total dominance on economic policy, one with lasting implications for the enforcement of other new regulations, including stronger protections for consumers.

Debtors’ Prisons

Plenty of economic battles will remain after this year’s Congressional contest over Wall Street. As Annie Lowrey emphasizes for The Washington Independent, authorities in several states are actually throwing people in jail for failing to pay off credit cards and other debts. Lowrey highlights a story and study by the Minneapolis Star-Tribune which reveals that, as the recession has deepened, judges have been ramping up arrest warrants for people who don’t pay their debts. In Minnesota alone, 845 people were arrested for being in debt in 2009, up 60 percent from four years ago.

As Lowrey notes, it’s not a crime to be in debt or fail to pay it off. But debt collection agencies have still been able to persuade judges to put borrowers behind bars until they make minimum payments. This is a total abuse of the justice system and a waste of taxpayer dollars.

Sometimes borrowers just can’t pay—that’s the dominant risk involved in banking, and being able to figure out who can pay and who can’t is the job of a banker, not a police officer. Debt collectors, by contrast, purchase debts at a discount, precisely because it is unlikely that borrowers will be able to pony up. If they can’t, that isn’t the business of a criminal court. It’s the risk inherent in a business model based on scavenging.

Slashing Social Security

Other items on the economic policy agenda are looking similarly ominous. As Robert Kuttner emphasizes for The American Prospect, Wall Street tycoon Pete Peterson appears to have found an ally in the Obama administration for his lifelong quest to slash Social Security. The plan is to pull back support for seniors in the name of balanced budgets. These cuts will be totally counterproductive economically, as would the corresponding middle-class tax hike and domestic spending freeze that Peterson is pushing for.

The real fight over Social Security is still a few months away, but as GRITtv’s Laura Flanders notes in an interview with Sen. Bernie Sanders (D-VT), deficit hysteria has already infiltrated contemporary policies. Republicans and conservative Democrats are using the deficit as an excuse to deny people the most basic social services, like unemployment benefits and health care payment assistance for the unemployed.

More on the deficit “problem”

As the editors of The Nation note, there is no short-term U.S. budget deficit problem. Interest rates on U.S. Treasury bonds are at record lows. Anybody who claims to be worried about the deficit is really worried about the longer-term implications, and those longer-term issues have big-picture, long-term solutions.

The single most critical variable in budget calculations in the increasing rate of health care costs, but the bloated defense budget and low tax rates for big corporations and wealthy individuals are also a target. Skimping on unemployment benefits, or refusing federal aid to hire teachers and cops doesn’t help those long-term issues one bit.

Cutting government spending and social services during a recession seriously threatens economic recovery. When everybody is broke, the government is the only reliable source for the spending needed to support growth and employment, and it has to keep spending until things really turn around. Obama’s 2009 stimulus kept the unemployment rate from reaching 12 percent or 13 percent, but it was just too small to really turn the economy around. With unemployment at 10 percent, we need more federal support for jobs, not less.

The recent progress on Wall Street reform shows that Congress finally understands that they need votes more than campaign contributions. Lawmakers who leaves those citizens out to dry by refusing to back a jobs bill or allowing unemployment benefits to expire will be in trouble come November.

This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.

by Zach Carter, Media Consortium blogger

Last night, Senate Republicans proved beyond any doubt that when it comes to the economy, they stand with Wall Street and against everybody else. Joined by lone Democrat Sen. Ben Nelson (D-NE), Republicans successfully filibustered the procedural technicality of opening debate on Wall Street reform. It’s an unmistakable ploy to kill the bill and collect campaign cash from bigwig bankers. The coming weeks won’t be pretty.

Republicans are going to be battered by this filibuster. Financial reform is popular, and nobody on Capitol Hill wants to be seen as the agents of Wall Street in Washington come November. Republicans are hoping to rhetorically counter Obama’s proposals, negotiate a fatally weakened reform package, and then vote with Democrats for reform-in-name-only before the elections. But the U.S. financial system is broken and voters know it needs strong medicine.

In a speech last week before Cooper Union Hall in New York City, Obama laid out what’s at stake in the reform fight. Our biggest banks don’t fear failure because they know the government will bail them out in a crisis. As a result, they take massive risks that endanger the economy. Our current regulators ignored predatory lending in order to protect Wall Street profits. To top it off, the risky, multi-trillion-dollar market for derivatives—the financial weapons of mass destruction that brought down AIG—remains beyond the scope of regulatory authority altogether.

Without major changes, the U.S. economy is doomed to repeat the destruction of the past two years. Epic bailouts, consumer predation and heavy job losses will become the new national norm, not just the conditions of a single, terrible crisis. Last night’s Republican-plus-Nelson filibuster was an effort to preserve an unacceptable status quo.

Phony populism

As Matthew Rothschild emphasizes in a podcast for The Progressive, Wall Street Republicans have been spreading all kinds of crazy lies about Obama’s reform legislation. While the legislation that cleared the Senate Banking Committee in March isn’t perfect, it isn’t a massive bailout for Wall Street, either. But Senate Minority Leader Mitch McConnell (R-KY) has been making the rounds calling it just that, in a dishonest effort to kill the bill. This is phony populism. McConnell says he’s against bailouts, but his goal is to prevent reform from overturning the current system, which, as we saw in 2008, has bailouts baked in.

While Obama did a good job identifying what’s wrong on Wall Street, the solutions he proposed are either too weak to end abuses, or simply not included in the Wall Street reform bill in its current form. Obama’s initial proposal for a new Consumer Financial Protection Agency was great, but Sen. Chris Dodd (D-CT) watered down in the Senate Banking Committee to appease Republicans. The same thing happened to Obama’s proposal to fix the wild market for derivatives, the financial weapons of mass destruction that brought down AIG.

How to make reform a reality

As Sarah Ludwig of the Neighborhood Economic Development Advocacy Program (NEDAP) emphasizes in an interview with GRITtv’s Laura Flanders, most of the reforms currently under consideration are a “good first step.” That is to say they are useful and productive—but not enough to fundamentally change the way Wall Street does business.

Fortunately, there are several amendments that can fix these shortcomings, most notably the SAFE Banking Act, introduced by Sens. Sherrod Brown (D-OH) and Ted Kaufman (D-DE). As Peter Rothberg emphasizes for The Nation, the amendment would force our largest banks to split up into institutions that could fail without jeopardizing the broader economy. It would also place a hard cap on the total amount that banks could bet in the financial markets.

Those amendments, of course, can only be added to the bill if Republicans allow debate on financial reform to begin. Progressives should be fighting hard to make sure that the break-up-the-banks measure is included in the bill that the Senate eventually votes on. And as Rothberg notes, there will be plenty of opportunities to do so this week. Protests calling for Major Wall Street reform have been organized all over the country. On Tuesday, protesters will speak out against predatory banking behemoth Wells Fargo in San Francisco. On Wednesday, they will target too-big-to-fail titan Bank of America in Charlotte, N.C. On Thursday, reformers will march straight into the lion’s den on Wall Street itself to demand change. It’s called the Showdown in America, and you can find out more here.

It’s only just begun—but how did we get here in the first place?

But whatever happens with this bill, the fight to rein in Wall Street is just beginning. As Robert Kuttner emphasizes for AlterNet, President Franklin Delano Roosevelt had no shortage of verve for Wall Street reform, but it still took him seven years to enact all of the New Deal banking laws. And as Simon Johnson and James Kwak detail for The American Prospect, reining in Wall Street means overturning the ideology that has dominated the halls of power in Washington, D.C. for three decades.

Since the Reagan era, politicians from both political parties have sincerely believed that what is good for Wall Street is good for America. The subprime mortgage monstrosity and Great Crash of 2008 put cracks in the foundation of that ideology. But the process of demolishing it may very well take longer than the legislative cycle that will end with the November elections.

Even if we do get a strong bill—one that breaks up the biggest banks, bans them from placing risky bets in the derivatives and securities markets and establishes a new Consumer Financial Protection Agency—other important aspects of the financial sector will need to be addressed in other legislation. Hedge funds, whose pivotal role in the crisis is only now being identified, will need to be reined in. Rating agencies, who actively fueled the subprime bubble, and whose business models are founded on conflicts of interest, must be restructured. The future of Fannie Mae and Freddie Mac must be decided. Families across the country still need foreclosure relief.

We need a strong Wall Street reform bill. There is no excuse for any politician from either party to be standing with bigwig bankers against the rest of the country. And with two-thirds of the nation supporting reform, any political party that throws in its lot with Wall Street will pay a major price come November. No amount of Wall Street campaign cash can counter the voter outrage over bank bailouts and bonuses. There’s no way to know when Republicans will come to their senses, but whatever happens this week, there will still be much work to do this year and the next.

This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.

I don't know if you get to read incoming e-mail. I doubt it, as I know the value of your time in running the country and still finding some room for your wife, children and dog. However, I would like to offer you a couple of points from my not-so-unique position as an unemployed American with two college degrees who worked on your campaign steadily for many months last year... and who is now getting more and more disappointed in your progress, or lack thereof.

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By Zach Carter, Media Consortium Blogger

President Barack Obama invited leading economic thinkers to a job creation summit on Thursday to help combat the worst unemployment crisis in decades. The stakes couldn't be higher: If Obama can't build momentum for robust legislation that will create jobs, the unemployment rate could remain in double-digits all the way through 2011.

In Salon, Andrew Leonard highlights some positive comments Obama made at the jobs summit. In an exchange with The American Prospect's Robert Kuttner, Obama said that the long-term budget deficit is an issue, but that the best way to reduce that deficit is to spur economic growth. When the economy is growing, the same tax rates reap greater returns for the government.

If the U.S. dramatically slashes economic support programs to clamp down on the deficit in the short-term, the economy is going to shrink. About two-thirds of the economic growth in the third-quarter of 2009 came from intiatives related to Obama's economic stimulus plan. If we cut back on stimulus, we lose more jobs and make the long-term deficit worse by hampering growth.

We've faced this kind of dilemma before and seen what happens when you focus too much on the deficit,  as Katrina vanden Heuvel emphasizes in a column for The Nation. "In 1937, just as there was some recovery from the Depression, the debt hawks swooped in and there was a return to the deficit reduction model," vanden Heuvel writes. "Things went south again. We don't need a repeat of that."

So Obama doesn't want to attack the deficit at the expense of jobs, which is good. But it's problematic that the President is still at the summit stage on the most politically pressing issue for Democrats, as Terence Samuel explains for The American Prospect. If the labor market doesn't start getting better soon, voter dissatisfaction with Obama's economic platform will impact other critical policy initiatives, from health care to climate change.

"The president is up against an unpredictable clock," Samuel writes. "With his approval rating hovering around 50%, he can't be sure how long Democrats in Congress will stick with him on anything if there is not some noticeable improvement in the jobs picture soon. The urgency on the job situation is not lost on Democrats in the House and Senate who must defend the seats of 18 Democrats in 2010."

Most of the pressure Obama now faces is to create jobs, not just save them. That's because his stimulus helped get the unemployment rate under control--we're still losing jobs, but not as fast as we were in January. But as Aaron Glantz notes for New America Media, the risk of heavier job loss is still present.

State governments are up against very difficult budget constraints, thanks to tax losses related to widespread layoffs and foreclosures. If they don't get help from the federal government, states will be forced to cut expenses, which means shedding more jobs. Glantz highlights a recent conference call with AFL-CIO leaders who warned that state and local governments could be forced to cut up to one million jobs in 2010 if Congress and President Obama fail to enact a major jobs bill.

David Moberg envisions an ideal jobs bill for Working In These Times. We need a major aid package to state governments, modernizing our schools and transportation network, a public-sector job program to fund important work in our communities, and a tax credit for companies that hire workers. The whole thing would only cost $400 billion and would create 4.6 million jobs. That could be enough money to move unemployment out of crisis-mode. Right now, about 15.4 million workers are out of a job. Half those workers have been put out of work over the course of the recession. Creating 4.6 million jobs would make an enormous difference.

And while the $400 billion price tag may sound like a big number, it's a drop in the bucket compared to our $9 trillion fiscal deficit. Going back to The Nation: As vanden Heuvel notes, the whole package could be paid for with a modest tax on risky Wall Street securities trading.

This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.

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The true extent of the status quo's looting of U.S. taxpayers is about to be spelled out to the general public in black and white this week.  See: "Fed Program to Spur Loans May Start With Few Deals."

Over the next few days, this is all going to get very, very clear...at least to anyone that bothers to pay attention.

The Treasury Department and the Federal Reserve are "about to announce" (they've been talking about this for many months) a massive Wall Street "bad bank" plan that is, effectively, nothing more than a recycled, $2 trillion-plus, Bush administration taxpayer giveaway to the very entities and individuals that created our economic freak show in the first place. (And, we may have reached a tipping point where even the MSM may no longer be mincing words about these truths.) They are still spinning this like it's new information when little could be farther from the truth. See: "Geithner Says He'll Soon Offer Details on Toxic-Asset Cleanup."

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