Saturday, August 5, 2017

The Banking Lobby: Writing Its Own Ticket in Washington

The Huffington Post observed in 2012: “Wall Street's campaign spending and lobbying power is so intimidating that banks have repeatedly stuck the public with the tab for their losses and no one in Washington stops them.” This was a significant change to be sure from President Jackson depriving the Second National Bank of the U.S. of funding in 1832.

For example, as proposed in early 2012, “(m)ortgage lenders would be encouraged to provide greater relief to borrowers who are in less need of help while offering scant assistance to the most troubled homeowners.” These were the terms of “a proposed $25 billion settlement between the nation's five largest banks, attorneys general in nearly every state and the Obama administration.” The banks “would receive greater credit toward satisfying the terms of the deal when they help borrowers who owe less than 175 percent of the value of their homes. Helping borrowers who owe more than 175 percent would qualify for less credit.” It is as if the homeowners most under water were being presumed to be at fault, even in the case of liar’s mortgages foisted by bankers.

The terms of the proposed settlement suggest that the elected representatives were less oriented solving the housing crisis than to collecting campaign contributions from the banks. “To really make a difference in the housing crisis, you have to assist high [loan-to-value] homeowners," said Diane Thompson, an attorney at the National Consumer Law Center. "Otherwise, at some point, they're all going to walk away from their homes.” The banks had long been resisting calls to forgive large portions of loan balances in order to avoid recognizing losses. According to the Huffington Post, the settlement’s terms “appear to satisfy the banks on this point, minimizing the pressure to hand out relief to severely underwater borrowers.” The unfairness can also be seen from the conflict of interest in the stipulation that “states whose residents appear to be victims of illegal foreclosures could take such cases to a committee headed by North Carolina's banking commissioner.” The mechanism reflects the banking lobby effectively heading the settlement between the banks and the government officials. In other words, the banks get to write their own settlement, even though they had been at least partially at fault, as in their liar loans and robo-signing mechanism.

Even giving bankruptcy judges “the legal authority to modify principal balances on mortgages in a way that is fair to both parties,” which “would have allowed more than a million ordinary Americans to keep their homes,” was too much for the banking lobby. It got the U.S. Senate to vote down the amendment in 2009 even as banks were foreclosing on millions of Americans. David Kittle, chairman of the Mortgage Bankers Association, gleefully said, “We led the way on this, and we are clearly responsible for defeating this for the third time in the last year.” Meanwhile, Sen. Dick Durbin (D-Ill.) told a radio host, “And the banks—hard to believe in a time when we're facing a banking crisis that many of the banks created—are still the most powerful lobby on Capitol Hill. And they frankly own the place.” This was a striking admission, as was the banks’ dominance a year after the financial crisis—a near-meltdown in which the banks played a significant role.

“The finance, insurance and real estate (FIRE) sector combined to spend $6.8 billion on federal lobbying and campaign contributions . . . from 1998 through 2011. . . . That's $1 billion more than any other sector spent on Washington.” Lawmakers are under such pressure to amass campaign cash that the contributions buy the contributors access, and thus influence. The American Banker’s Association, the U.S. Chamber of Commerce, and the Business Roundtable multiply the bank’s influence even more. Additionally, the lobby can utilize the influence of community banks and credit unions, which goes far beyond their role in the economy. The fear voiced in the constitutional convention in 1787 that Congress would become an aristocracy based on wealth—being disproportionately oriented the moneyed interest—had come to pass well before the financial crisis of 2008.

So it should be no surprise that in May 2010, Sen. Tom Harkin (D-Iowa) sought to cap ATM fees--noting that “ATM fees average $2.50 and can run as high as $5 . . . while the real cost of processing a transaction is about 35 cents,” the banks “opposed the idea, arguing that capping fees would just lead to fewer cash machines, including those owned by banks.” As a result, there wasn’t even a floor vote. His own floor leader, Harry Reid, denied it because Republicans had not agreed to it. In short, banks get their way on both sides of the aisle. The republic itself serves the banks even when they have acted badly or unfairly. Even if this means that democracy is a sham in the U.S., even such a recognition would not be likely to make a difference—the electorate so dispersed and disoriented, even subtly manipulated against its own interest in democracy. 


Loren Berlin and D. Levine, “Robo-Signing Settlement Might Not Provide Homeowners With Needed Help,” The Huffington Post, February 2, 2012. 

Dan Froomkin and Paul Blumenthal, “Auction 2012: How the Bank Lobby Owns Washington,” Huffington Post, January 30, 2012.