Elise Amendola/AP Photo
After Democrats swept into control of the House of Representatives in the 2018 midterms, something unusual happened: almost no incoming freshmen sought a seat on the House Financial Services Committee. Not only is the panel one of the most important and wide-ranging in Congress—with jurisdiction over banking regulations, the affordable housing crisis, economic discrimination, retirement security, and the macro economy—it’s historically been a landing spot for swing-state Democrats looking for a fertile source of campaign fund-raising from deep-pocketed financiers. Yet the centrist Democrats saw more peril than promise in accepting Wall Street donations.
This practically unprecedented situation created an opportunity for progressives who were unable to secure spots on other exclusive committees to jump onto Financial Services, like superstar congresswoman Alexandria Ocasio-Cortez. But overseeing the financial sector is anything but a consolation prize; as Occupy Wall Street taught us, the industry is right at the heart of why the economy no longer works for most Americans.
After all, it was only a decade ago that inattention to financial maneuvering led the economy to the brink of implosion, as bankers took advantage of the opportunity to steal in the dark. The results fell most harshly on the working poor and those struggling to improve their lot. Roughly 8.7 million jobs were lost in the Great Recession; according to a Wall Street Journal article in 2015, at least 9.3 million families lost their homes, through either foreclosure or some other transaction that forced an eviction. Most of these borrowers committed nothing more than an accident of timing, buying into a historic bubble and suffering tragic consequences. The housing collapse robbed millions of families of home equity, the primary method of building wealth in the United States, particularly for families of color. Former representative Brad Miller has called the crisis “an extinction event” for the black and Latinx middle class.
The Great Recession’s Wall Street–directed pain at the nation’s most vulnerable is no anomaly. For decades after the Depression, lenders redlined neighborhoods to keep families of color out, barred from an avenue to gathering wealth. When the Fair Housing Act of 1968 and the Community Reinvestment Act of 1977 attempted to right these wrongs and produce equitable access to the financial system for low- and moderate-income families, the industry cooked up other schemes, like subprime lending, to wipe them out. And even after the recession, banks like Wells Fargo continue to use deceptive practices to nickel-and-dime low-income customers and put them in peril. Wall Street and predatory misconduct often go hand in hand.
Timothy Geithner, then Treasury secretary, was fond of a simple dictum: “Plan beats no plan.” He focused with laser-sharp precision on preserving the financial system, and policy makers to his left with vague alternatives could not compete. As a result, instead of transformative financial regulation, we got the Dodd-Frank Act, and while parts of it undoubtedly have merit (such as the Consumer Financial Protection Bureau, a long-needed agency with its sole mission to protect people from financial rip-offs), for the most part it produced a complex series of technocratic tweaks, with final rules left up to banking regulators to write. After its passage, the industry predictably sent a flotilla of lobbyists to weaken Dodd-Frank and lock in the status quo. Even the Consumer Financial Protection Bureau couldn’t prevent a committed opponent, Mick Mulvaney, from taking over during the Trump administration; enforcement slowed to a trickle.
Geithner, incidentally, is now running a private equity firm that owns a company called Mariner Finance, which profits off deceiving the working poor into high-interest loans. Plan beats no plan.
For the emerging left, answers are available for how to rein in the financial sector; they just need to be given prominence. At a time of climate devastation, migrant abuses, and soaring inequality, it may seem boring and arcane to focus attention on loans and securities. But control of money—who has it, who can manipulate it, and who can deploy it at others’ expense—must sit at the center of a left agenda.
Gerald Herbert/AP Photo
President Barack Obama leaves a White House meeting with NEC Director Lawrence Summers; Representative Barney Frank; Senator Christopher Dodd; Treasury Secretary Tim Geithner; Senator Richard Shelby; and Representative Spencer Bachus, February 2009.
What do we actually need a healthy financial system to do? First, it must manage payments, so we don’t have to carry wads of cash around to settle major transactions. This used to mean checks and credit cards, but today we have debit cards, electronic fund transfers, online bill pay, e-commerce solutions, and even mobile payments. Second, a good financial system matches those who want to lend money with those who want to borrow—whether individuals or businesses. We mostly think about this as a bank using savings deposits to finance lending; that’s not quite how it works, as we’ll get to later. But peer-to-peer online services directly matching borrowers and lenders have also flourished more recently.
Banks also manage investments for families and institutions. And finally, banks provide insurance—both simple insurance against loss of savings (by putting them in a government-insured institution instead of under a mattress), and more sophisticated insurance of major assets like home or auto or family well-being, in the event of a sudden loss of the breadwinner. These functions are intended to enable investments in the real economy, so productive businesses can grow and entrepreneurship can thrive.
As John Kay, the longtime Financial Times writer, estimates in his book Other People’s Money, these elements—again, all that we actually need for a functional financial system—make up only about 10 percent of total sector activity. To a far greater degree, financial institutions today trade assets, package assets for trading, and repackage those packaged assets for more trading. Trading desks have swamped more traditional banking operations in terms of growth and profit. In short, we built a financial sector and created a trading monster.
As a result, Wall Street is several orders of magnitude larger than it should be. In 2017, the financial sector took in $432 billion in profits, just under 20 percent of total net corporate income. Federal Reserve banks accounted for another $79.2 billion. Put that together and nearly $1 in $4 earned by corporations in 2017 came from financial sector activity.
If anything that’s an undercount, because it doesn’t include parts of the nonfinancial economy where profits are conjured through financial activity. Incredible amounts of corporate profits are derived from accounting and tax strategies that have nothing to do with the core business. Apple may make iPhones, but it also manages a $244 billion investment firm called Braeburn Capital, like many other Fortune 500 companies that are laden with cash and deploying it in the capital markets. Dozens of retail, restaurant, and consumer product brands are pawns in a financial engineering contest waged by private equity firms. A surprising chunk of activity on Amazon is effectively arbitrage trading, with upstarts securing assets they can buy low and sell high. Mergers and acquisitions, which soared to record highs in 2018, can be seen as higher-level trading of entire corporations, with banks advising and taking cuts out of the deal.
Overfinancialization creates multiple problems for an economy. It increases systemic risk; if the bankers’ bets go bad, there’s less of a real economy to fall back on. It stifles efforts to build a more inclusive economy, as access to financial markets determines fortunes. Nearly one-third of all national income in the United States is derived from financial maneuvers like stock equity, interest, dividends, and real estate. This income is generated from having money, and the financial sector facilitates this wealth built upon wealth. No less than the radical socialists at the International Monetary Fund have demonstrated that a financial sector reaches a tipping point at a certain size, where its continued development can actually damage growth. The United States is currently on the wrong side of that line.
The dominance of trading lessens the importance of traditional banking, especially in what bankers would call “unprofitable” communities. Over the past decade banks have dumped branches and created financial deserts across the country. According to the Federal Deposit Insurance Corporation’s most recent national survey, more than one-quarter of all American households have little or no access to financial services, deprived of an essential component of participating in the modern economy.
A bloated banking sector supercharges inequality, with the earnings of those allowed inside the Wall Street casino far outpacing those of ordinary workers. That’s true within the industry as well: the largest six U.S. banks control $10.37 trillion in assets, a figure that has only increased in market share after the financial crisis. That may sound enormous, but it’s actually less than the $12.8 trillion lent, spent, and guaranteed by the U.S. government to save the financial system after the 2008 crash. Not only are lumbering banking behemoths too big to fail, granted implicit guarantees by the government that they will be rescued in the event of disaster; their sprawling operations are also too big to manage, highlighted by complexity and confusion that gives bad actors leeway—often deliberately so—to engage in misconduct. From assisting money laundering and tax evasion to rigging interest and foreign exchange rates, banks have revealed themselves as unrepentant sinners who took taxpayer cash without strings and showed no interest in reforming their behaviors.
We cannot rely on Silicon Valley to get right what Wall Street has gotten wrong.
The economic power held on Wall Street routinely converts into political power. The financial sector enjoyed some of the biggest benefits from the Trump tax cuts, an unprecedented $100 billion in earnings by the biggest six banks in 2018. Efforts to get banks to divest from environmental calamities like the Keystone XL pipeline, private prison companies profiting from immigration cruelties, or gun manufacturers driving America’s mass shooting epidemic are in their way noble, but also faintly pathetic, as they accept as reality that banks have simply accumulated more power than democratic governance and that the only avenue to policy change lies in begging Wall Street executives to use their dominion over the country for good.
So how can we fix this? It’s simple: we retain the parts of the banking system that are socially useful and necessary. We ensure equitable access to those tools, stepping in with nationalized solutions if the private sector cannot accomplish this.
And then we flay the rest and toss it into the sea.
Step 1: Breaking Trading
One provision in the Dodd-Frank reform tried to do something about excessive trading. The so-called Volcker rule intended to prevent banks that take deposits from using that money to make high-risk trades; sometimes this is known as proprietary trading. But the prohibition relies on whether regulators can differentiate proprietary trading from the carve-outs that bank lobbyists managed to force into the rule. If a bank says it’s hedging risk—making a trade to offset potential losses on another trade—or engaging in market making—offering to buy and sell the same financial instrument so other investors have access to the trade—it’s exempt from the Volcker rule. And sharp bankers quickly learned how to characterize practically every trade in their portfolio as market making or hedging.
Another exception enables banks to invest up to 3 percent of their capital in hedge funds and private equity firms, effectively laundering trading through another channel. Successful lobbying for subsequent delays in implementation relieved banks from having to unwind most of their out-of-compliance trades until 2017, seven years after the Volcker rule’s passage.
So plenty of trading has continued, and now the Trump administration has begun the process of degrading the Volcker rule even further, by exempting more types of funds and shifting the burden of proof for compliance to regulators instead of the banks. In other words, an illegal trade isn’t illegal until some agency official manages to figure it out, even though regulatory budgets are a fraction of any established bank’s, and regulators cannot possibly track down noncompliant trades in real time.
We already have many of the tools needed to transform the financial system. What we lack are regulators aggressive enough to use them. Under Dodd-Frank, firms that cannot credibly explain to regulators how they would be dismantled and sold off in a crisis can be forced to downsize or even break up. The Financial Stability Oversight Council, a board composed of major regulators, also could declare that large firms must be busted up if they posed a systemic risk. The Federal Reserve has already and can further increase capital requirements on the largest and riskiest firms in ways that could force them to pay for their own mistakes and induce them to downsize. The Justice Department can jail executives who break the law or otherwise punish miscreant banks to create a deterrent against criminal behavior.
But to eliminate the risks of excessive trading, regulators would need additional tools. First, we could structurally separate trading activities from traditional banking activities like taking deposits and making loans. This is often called the Glass-Steagall reform, after the New Deal–era rule splitting investment and commercial banks.
This would reduce the interconnectedness that caused losses in housing securities to cascade throughout the financial system during the crisis. It would also break up large supermarket banks that perform both commercial and investment banking activities, like JPMorgan Chase or Citigroup, and move them down the road of being small enough to fail without disrupting the economy.
Such a rule would further establish that banks can receive government benefits like deposit insurance, discounted Federal Reserve lending, and expectations of future bailouts only if they engage in socially necessary activities. We shouldn’t want ordinary Americans’ deposits entangled with, and indeed funding, what amounts to high-stakes gambling. A no-transfer rule would prevent any money inside a narrow commercial bank from leaking out into the capital markets. If an investment bank wants to trade, it can do so on its own dime, with fully disclosed risks and a prescribed duty to investors.
The concept of Glass-Steagall–style structural separation has been broadly accepted throughout developed economies. The Liikanen report, produced in 2012 by a European Union task force, recommended “ring-fencing” deposits so that they could not be jeopardized by failures in trading. The Vickers report in the United Kingdom reached the same conclusion. The radicals in this debate are protecting the deregulatory status quo; the rest of the world has already made up its mind.
John Kay takes this even further by recommending specialized institutions for handling asset management, issuing securities, and advising corporations. His design would minimize conflicts of interest, so the same firm isn’t selling securities and advising companies on what securities to buy. In Kay’s view, Glass-Steagall isn’t enough to fragment the system; you must broadly segment to ensure safety and break the “tight coupling” between different parts of finance. He looks at the problem as an engineer would, and redesigns the plumbing to ensure that the water keeps flowing regardless of an isolated failure.
Depriving subsidies to trading institutions limits the amount of funds available to expand trading. But there’s also the option of simply banning socially unproductive trading entirely. That would return finance to its role as a facilitator of economic output, rather than the center of it.
Step 2: Deleting Derivatives and Spotlighting the Shadow Banks
Derivative trades are bets on whether a financial asset will go up or down in value, regardless of whether either side of the trade owns that asset, and they’re everywhere. The most recent statistics show an outstanding value of all derivatives contracts at $544 trillion, with a t. Derivatives originated as commodity hedges, so farmers would have some fallback in case their crops failed. Of course, there are other ways to compensate farmers for assuming risk. And noncommodity derivatives have poured money into financial markets for scant societal benefit. That’s particularly true of second-order derivatives, bets on top of bets repackaged for investors to trade. During the financial crisis, collateralized debt obligations—derivatives based on the rise and fall of the housing market—exposed the entire system to the bubble collapse. Thanks to collateralized debt obligations, investors who didn’t own the underlying mortgages still lost big when those mortgages failed.
Big banks and their regulators sometimes argue that derivatives are merely a risk-management tool. But as we saw in the crisis, when deployed in the real world, derivatives increase financial risk by widening the amount of exposure from any single disaster across investors and firms. If they just amount to bets in a casino, close the casino.
A proposal from Morgan Ricks of Vanderbilt University addresses short-term funding markets, a $20 trillion pool of overnight lending that finances an astounding amount of trading activity. The financial part of the financial crisis occurred because lenders were worried they wouldn’t be paid back on their short-term debt. Overnight repurchases or money market accounts are considered as safe as money, but the crisis demonstrated that they are potentially unstable and prone to runs. Banks have reduced reliance on this type of debt, but there’s still plenty of it floating around, particularly outside the traditional banking sector, as a cheap source of funding for so-called shadow banks like hedge funds and private equity firms.
If only chartered banks could issue short-term debt, and if they were separated from other parts of the financial system, those banks could be monitored for excessive lending, reducing the likelihood of a debilitating crisis. It would simplify the market structure by limiting the channel through which overnight lending could flow. Plus, shadow banks would lose access to cheap capital.
This raises a bigger question: why do hedge funds exist at all, and do we need them? A loophole in the Investment Company and Investment Advisers Acts of 1940 allowed firms that cater to “sophisticated investors”—at the time wealthy families—to engage in risky profit-making activities like short sales (bets that a stock will go down instead of up), leverage (investing with borrowed funds to amplify returns and heighten risk), and corporate takeovers. Policy makers justified this by reckoning that sophisticated investors can handle the risks, while retail investors needed to be protected more stringently. The exemption expanded in the National Securities Markets Improvement Act of 1996 to include institutional investors like pension funds and university endowments; hedge fund assets subsequently increased twentyfold in twenty years.
This has perverted the entire point of the 1940 acts, which was to break up giant pools of capital used for rank speculation. Now hedge fund capital, and that of its close cousin the private equity fund, has shoved itself into practically every aspect of economic life, largely outside the purview of regulatory authorities. Most retail bankruptcies in the age of e-commerce can be attributed to companies owned by private equity funds, investment firms that load up companies with debt and extract profits. Hedge funds have been at the forefront of scooping up the discounted debt of struggling sovereigns like Argentina or Greece or Puerto Rico and forcing a repayment payday. High-frequency trading is more and more a province of hedge funds. Name a financial strategy that harms workers, businesses, and investors, and there’s sure to be a hedge fund or private equity firm behind it.
We don’t have to permit that. Closing the loophole and placing hedge funds under the 1940 acts would mandate disclosure, alter the industry’s complex, lucrative fee structures, and eliminate the use of leverage. In effect, it would put these predatory actors out of business.
Separating bank business lines by activities, and banning harmful products, changes the system we have from a complex, interconnected agglomeration, where a failure in one area can spill over everywhere, to a more independent and stable system. Combining these ideas would reduce trading volumes and channel capital only toward necessary activity.
Rick Bowmer/AP Photo
Californians for Community Empowerment and others protest Wells Fargo’s consumer lending and mortgage practices after bank shareholders’ Salt Lake City meeting, April 2013.
Step 3: Democratize Our Financial System
But eliminating or segregating the nonessential aspects of banking is not sufficient to fix the system. If separated from investment banking, the firms controlling consumer banking will need to rely even more on fees and markups and deception to hit their profit targets. We saw this with Wells Fargo, a firm mostly engaged in consumer banking, which issued millions of fake accounts to meet high sales goals. That was just one of an avalanche of scandals for the bank, most of which involved ripping off its own customers. It placed unnecessary auto insurance on customer accounts, secretly changed the loan terms of mortgage borrowers in bankruptcy, and falsified records to charge mortgage applicants for its own delays in application processing, to name but a few examples.
Any bank committed to that much criminality to make its profits should have its corporate charter revoked. But even a scrupulous commercial bank sector would be problematic for how much of the country it leaves out. Large banks claim that poor depositors whom they cannot also sell loans to or advise on investment cost them money on average. It’s worth questioning this assertion, but if commercial banks are prohibited from engaging in other profit-making activities, it’s likely that rates of unbanked and underbanked Americans—concentrated in poor communities and communities of color—would increase.
Traditional banking is one area where there’s been an attempt at disruption. So-called fintech firms use the internet to deliver financial services. This includes companies that let people make payments over the web or on their phones (PayPal, Stripe, Venmo); websites that offer simple bank accounts without physical bank branches (Chime, Empower); financial adviser robots that manage investments through an algorithm (Betterment); and peer-to-peer consumer lending sites that match people with excess money to those who need it (Prosper, LendingClub, SoFi). Users of these services praise their efficiency and ease of use. And it’s not like traditional banking has such a sterling reputation that it couldn’t do with some competition.
But there’s as much peril in fintech as there is promise. Like shadow banks, LendingClub and SoFi exist somewhere outside the regulatory perimeter, unencumbered by laws that protect consumers. State regulation could provide a backstop, but federal banking regulators in the Trump administration have trotted out a fintech banking charter, which would strip state oversight and potentially allow these companies to engage in deceptive or discriminatory lending while federal authorities look the other way.
It’s also more and more apparent that the ultimate lenders behind these shiny internet firms are the same old bankers and financiers who dominate this industry. Morgan Stanley, Goldman Sachs, and BlackRock have plowed money into peer-to-peer lenders and issued hundreds of millions of dollars in peer-to-peer loan-backed securities. This is not very different from how banks provided the capital for nonbank mortgage originators to make subprime loans during the financial crisis.
We cannot rely on Silicon Valley to get right what Wall Street has gotten wrong. New laws to give fintech consumers the same protections as bank customers are sorely needed. But even with those in place, the divide between those with and those without a bank account could simply be replaced by a digital divide, locking out lower-income people in need of financial services. Plus, if an algorithm determines creditworthiness, as is the case with many fintech companies, the same biases blocking people of color from loans can slip into the process in a far more bloodless fashion.
Without stable access to financial services, individuals are pushed to the fringes, where predatory actors like check-cashing stores, pawnshops, and payday lenders gouge them. According to a 2014 white paper, the average household using these alternative financial services spends $2,412 a year on interest and fees, roughly 10 percent of their total gross income. This is completely unacceptable, and there’s a solution lurking on nearly every Main Street in America.
From 1911 to 1967, the U.S. Postal Service gave millions of customers postal savings accounts, and even today it sells money orders, a secure certified check. There are more than 31,000 post office locations, one in every U.S. zip code; 58 percent of their branches are in zip codes with zero or one bank. By offering basic financial services—an ATM card, an interest-bearing savings account, remittance services to friends and family abroad, even potentially small loans—the postal service can give millions a public option for simple banking, fulfilling the agency’s mission of providing all citizens access to commerce, while saving them billions of dollars in unnecessary fees to sinister operators. Federal benefits could be automatically loaded into postal banking accounts, and customers could seamlessly exchange payments inside the system. If banks would rather not serve low-income populations, the postal service can, more cheaply and equitably than the alternatives.
Postal banking would instantly increase convenience and give the unbanked a risk-free way to step into the modern economy. It would give everyone a way to exchange money, borrow when they need it, and have their savings protected. It could serve as the backbone of a consumer financial system, acknowledging that banking services comprise an essential piece of U.S. infrastructure, like a road or bridge.
But there are more ambitious options to democratize finance. Thomas Herndon and Mark Paul, in a 2018 report for the Roosevelt Institute, envisioned a publicly administered online marketplace for financial services, where the offerings of a postal bank and private banks could be compared side by side, with a ratings system and consumer reviews. This would incentivize competition on the price and quality of loans and other financial products and give the government a mechanism to police financial services through access to the marketplace.
Postal banking would instantly increase convenience and give the unbanked a risk-free way to step into the modern economy.
A more radical solution would be a public bank that does more than take deposits from individuals. The Bank of North Dakota, established in 1919, has only one depositor: the state. Those deposits, mostly tax revenues that have yet to be paid back out in salaries or services, form the base from which the bank makes in-state loans for economic development, including infrastructure projects and a student loan program.
A public bank serves as a substitute not so much for private sector banks as for the $3.8 trillion municipal bond market. When state or local governments fund large-scale projects not covered by taxes, they generally either borrow from the bond market at high interest rates, or enter into a public-private partnership with investors, who often don’t have community needs at heart and slap already beleaguered municipalities with outrageous underwriting fees. A public bank can offer lower interest rates and fees, because it’s not a for-profit business trying to maximize returns. Second, because the bank is publicly owned, any profit flows back to the city or state, virtually eliminating financing costs and providing governments with extra revenue at no cost to taxpayers.
The Bank of North Dakota, for example, has earned record profits for fourteen straight years, during both the Great Recession and the state’s more recent downturn from the collapse in oil prices. Over the last decade, hundreds of millions of dollars in bank earnings have been transferred to North Dakota.
The objection that governments have no money to lend is spurious. Banks don’t lend out their deposits, but create new money by extending credit. The deposits simply balance a bank’s books. Public banks, then, expand the local money supply available for economic development.
Public banking and democratized investment vehicles could reimagine the role of finance as more than just blind profit seeking. A bank built to serve the public can channel its resources to actual public needs. It can give the American people a defined voice in the direction of their money. Instead of being at the mercy of financiers, they’d be participating in a fundamentally democratic process.
If you put these ideas together, you end up with something close to what academics Morgan Ricks, Lev Menand, and John Crawford proposed in 2018. They call it the FedAccount. The FedAccount would be a personal account for all individuals and businesses at the Federal Reserve, the same as what financial institutions already have with the nation’s central bank. The FedAccount would supply debit cards, direct deposit, online bill pay, and mobile banking. And post offices could serve as the retail storefront location for the enterprise.
Money that banks stash at the Federal Reserve earns the federal funds rate, not the infinitesimal rates Americans receive on their bank accounts. Banks instantly transfer funds to one another through their FedAccounts, a privilege that would be opened up to the rest of us. Because businesses would also have FedAccounts, that would curtail transaction fees for retailers and create a cheaper substitute for cash, available to all. And while personal bank accounts are only guaranteed through the FDIC up to $250,000, FedAccounts can never default, no matter how large the account balance, because the Federal Reserve prints America’s money.
This would obviously increase financial access and improve the payment system. It would also eat away at the giant deposit bases of the big banks, reducing their size and potentially their risk to the financial system. But most important, it would allow the Fed to more directly influence economic policy.
Rajiv Sethi of Barnard College has explained that profits from the Fed’s balance sheet—and it earned $65 billion in 2018—could be directly transmitted to Americans in times of recession, to create an immediate fiscal boost. The money would go directly to debtors to pay off their bills, instead of creditors who benefit from changes to interest rates, the Fed’s current policy tool. Because millions of people would have FedAccounts, the Fed’s balance sheet would grow even larger, with more profits to channel during economic downturns.
In other words, the people’s money would be put to work for the people. And while the authors of the FedAccount proposal restricted the Fed from direct consumer and business lending, you could envision that being added on. If you believe money is a public resource and not a privately supplied product, government allocation of credit takes on the role of sensible distribution of resources. The FedAccount could tie together all facets of a public bank, built with the public’s well-being at the forefront.
A bank built to serve the public can channel its resources to actual public needs. It can give the American people a defined voice in the direction of their money. Instead of being at the mercy of financiers, they’d be participating in a fundamentally democratic process.
Americans are currently stuck with a decrepit payment system, miscreant banks, interest-bearing bank accounts that bear no interest, and a financial sector that’s thoroughly unconcerned with their lives, as they push past the public to trade their way to fortunes. Cryptocurrencies like Bitcoin inspire such frenzy because people are looking for an alternative to a broken financial system.
The architecture for that alternative already exists. It exists in regulators armed with the power to segregate functions and promote public safety. It exists in enforcement agents who can identify risk and simply eliminate it for the public good. It exists in federal agencies and central banks with missions to facilitate economic activity and prevent public suffering.
It also exists in our history, layered with numerous triumphs by ordinary people over financial greed. Progressive-era activists demanded and brought public banking to North Dakota. After the Depression, a young prosecutor named Ferdinand Pecora used a Senate committee charged with studying the causes of the crisis to lay bare the rank corruption in the banking system, leading to landmark New Deal regulation that kept the country safe from runaway finance for fifty years. Activists reeling from Reverend Martin Luther King’s death fought for the Fair Housing Act and an end to redlining. The Community Reinvestment Act of 1977, another grassroots initiative, strengthened fair lending laws by requiring broad investment across low- and moderate-income communities. The Consumer Financial Protection Bureau began as a proposal in a magazine by a Harvard professor named Elizabeth Warren, and thanks to popular support it became the only agency in the federal government with a core mission to prevent financial scams. As Wells Fargo pursued its rapacious schemes, a group of tellers and line-level employees formed the Committee for Better Banks to expose it, which culminated in the resignation of CEO John Stumpf.
In short, we know how to fix finance. We have a shelf full of ideas for this purpose, and a demonstrated capacity to leverage people power to make them reality. The only missing ingredient to accomplish this is the political will that a reinvigorated left can generate. The progressive surge onto the House Financial Services Committee provides an opportunity. Now activists and policy makers must work together not to squander it, so finance is finally, permanently, put on a leash. Nothing could be more vital to rendering a more just and prosperous America.
Copyright © 2020 by David Dayen. This excerpt appeared in We Own the Future: Democratic Socialism—American Style, published by The New Press and reprinted here with permission.
