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Banks won't change unless laws enforced
President Obama met with top bank executives on Monday, calling on Wall Street to make an "extraordinary" effort to boost the U.S. economy after benefitting from the bailout paid by taxpayers.
"I did not run for office to be helping out a bunch of fat-cat bankers on Wall Street," Obama said on CBS' "60 Minutes" the previous night.
He has every reason to be irate. The banks, saved from bankruptcy by taxpayers, are gearing up to pay themselves record bonuses, but they aren't making loans to small businesses. And, of course, they've unleashed legions of lobbyists to frustrate the president's effort to reform the finance community. "What's really frustrating to me right now,'' the president said, "is that you've got these same banks who benefitted from taxpayer assistance who are fighting tooth and nail with their lobbyists up on Capitol Hill, fighting against financial regulatory control." And when bankers mobilize, they are effective; as Illinois Sen. Dick Durbin said, "they control the place."
Durbin was talking about Congress, frustrated after the banks blocked efforts to give bankruptcy judges the right to adjust mortgages so that families in distress might stay in their homes. That "cram down" provision met defeat once more last week in the House Financial Services Committee. Wall Street may have caused the worst financial crisis since the Great Depression. But when Wall Street talks, legislators listen.
The president called the leaders of the banks to meet to discuss ways to open up the spigot on loans to small business. At this point, the major banks are happy to borrow money at near-zero interest from the Federal Reserve and deposit it in safe federal bonds, while earning money on trading, often based on inside positions. Loans to businesses, particularly small ones, are lagging as the banks use federal subsidies to strengthen their balance sheets without taking risks.
But U.S. taxpayers didn't bail out the banks so they could pay themselves large bonuses again.
One might have thought that limits on lobbying or requirements for lending could have been part of the bailout. The administration shouldn't have been relying on the good will of the banks that were saved.
But if he wanted to send a message, it would have been sensible for the president to have the attorney general sitting at his right hand when he met with the banks. Even the AG's presence would have suggested a new intention to enforce the law.
In fact, the banks trampled civil rights laws on the way into the crisis and are ignoring them on the way out. Going in, they decided to target previously redlined areas, often minority urban districts, for subprime mortgages. Not surprisingly, African-Americans and Latinos were disproportionately the victims of the banks' malpractice.
Now on the way out, the banks are going back to redlining minority neighborhoods. African-American and Latino homebuyers pay higher rates and find mortgages harder to get.
This destructive behavior is also illegal, violating basic civil rights laws about equal protection. Already Illinois Attorney General Lisa Madigan has brought a successful suit about the past practices in Illinois.
This is the basic lesson of the civil rights movement. It didn't do any good to say to Southern governors that since you've received federal assistance, you should do the right thing and end segregation. It took demonstrations and aggressive civil rights enforcement to get them to change.
The president can make an eloquent plea -- but he has to carry a big stick -- and that stick is the civil rights laws.
The president is right to sit the bankers down and reason with them. But if history teaches us anything, it will take more than reason and moral appeal to get them to move. It is time to enforce the law.
It's Christmastime, and it seems that the government has bailed out Herod, but left the baby in the manger. With 49 million Americans who are food insecure, many of them frail seniors and children, the worth of our work is measured by watering their roots, not just the leaves or the wealthiest among us.