The Troubled Democrats

The Trouble With Democrats
Reclaiming the Economy for the People

By William Greider
The Nation
June 5, 2009

http://www.thenation.com/doc/20090622/greider

The governing party faced an awkward dilemma. People
were hurting and furious at the government's generous
bailouts for banks. But how could the Democrats do
something for the folks without upsetting their friends
and patrons in the banking industry? Democrats think
they found a way. They are enacting a series of
measures described as "breakthrough" reform and
"unprecedented" defeat for the bankers. Only these
achievements are more accurately understood as "reform
lite." The house is on fire and Democrats brought a
garden hose.

The Democratic Party is changing in some promising
ways, but what's impressive is how much it has not
changed. Does that sound harsh? I am relying on private
judgments from Washington players regarded as the
"white hats" on this subject--consumer lobbyists and
other public-interest reformers, who for years have
labored in frustration to enact laws that would restore
equity and honest relationships to the out-of-control
financial system. These organizations mostly endorse
the Democrats' efforts and celebrate their "victories."
But a few minutes of private conversation reveals their
doubt and disappointment. "It's a good bill," they will
say, then after enumerating the shortcomings add, "It's
better than nothing."

"This has to be on background, OK?" one of the
reformers said. "This crisis brought down the world
economy and yet Congress still hasn't passed a bill
making sure it doesn't happen again."

Julia Gordon, a lawyer with the Center for Responsible
Lending, did not seek anonymity. "We have reached the
moment to ask ourselves Rabbi Hillel's question: if not
now, when?" Gordon said. "I fear we are letting this
crucial moment pass without putting forward-looking
rules in place to fundamentally change how mortgages
are made and prevent predatory lending. Plus, when we
look back at the foreclosure tsunami that devastated so
many families, we're going to be ashamed that we did
not fix the bankruptcy code to permit mortgage
modification. That move alone could have prevented more
than a million foreclosures, and while I predict we
will revisit the issue in the future, it will be like
closing the barn door after the horse has died."

If not now, when? That question ought to haunt the
Democratic Party and President Obama, who has been
missing in action himself on key issues. Congressional
Democrats are responding to this epic conflagration
with the same risk-avoidance tactics they learned
during many years in minority status. In those days,
they could always blame right-wing Republicans for
blocking their good intentions. But whom do the Dems
blame now that they have the White House and fifty-nine
votes in the Senate and a seventy-eight-seat majority
in the House? Their standard explanation for not doing
more is, "We didn't have the votes." So when might we
expect Democrats to achieve more? When they have eighty
votes in the Senate?

The party's ideological intentions are being defined
with greater clarity in these new circumstances, and so
are the President's. It's still early, but the
implications are ominous for other issues. If Democrats
are reluctant to disturb the power of other major
interests, it seems improbable that fundamental change
will occur on healthcare, energy conversion or the
restoration of work and wages. The problem now is the
Democrats, not the Republicans. The party aids and
protects its free-roaming entrepreneurial politicians
and does not punish those who undermine the party's
larger promises. When Republicans were in charge, they
enforced party loyalty with Stalinist discipline.
Democrats are the party of safe incumbents, weak
convictions.

The much-celebrated "Credit Cardholders' Bill of
Rights" is a fresh example of how the Democratic Party
tries to have it both ways--avoiding the tough votes
while mollifying the folks. The credit card reform
measure imposes new rules on the industry and does away
with many of the most outrageous gimmicks bankers use
to extract more money from debtors. Banks cannot raise
interest rates retroactively on old credit card
balances or pile on hidden fees or fail to give advance
notice for rate increases. These and other changes are
worthy.

The achievement seems less courageous if you know that
Congress was largely ratifying the regulatory rules
already adopted by the Federal Reserve last year. Or
that the legislation gives the industry another nine
months to gouge their customers before the new rules go
into effect. Or that Visa and MasterCard, Citigroup and
JPMorgan Chase are free to raise future interest rates
to the sky--without limit. That is the industry's
intention, as bank lobbyists reported after the bill
was passed.

American Usury

One of the fundamental issues that party managers
wished to avoid was the scandal of American usury.
Usury is the ancient sin of charging inflated interest
rates sure to ruin the borrowers. It is considered
immoral by Judaism, Christianity and Islam because
usury involves the powerful using their wealth to
ensnare weak and defenseless borrowers. The classic
usurer offers an impossible choice that debtors cannot
easily refuse. If they reject the terms of the loan,
they will not be able to pay the rent or buy
necessities. If they accept the usurious interest
rates, their debts will accumulate until they are
bankrupted (at which point the creditors claim their
property). No civilized society can endure in such
conditions.

Usury used to be illegal in the United States but it
was "decriminalized" in 1980--the dawn of financial
deregulation. A Democratic president and Congress
repealed all interest-rate controls and the federal law
prohibiting usury. Thirty years later, American society
is permeated with usurious practices--credit cards
charging 30 percent and higher, subprime mortgages and
other forms of predatory lending, the notorious
"payday" loans that charge desperate working people an
effective interest rate of 500 percent or more.
Businesses, especially smaller firms, are also prey to
usury in less direct ways.

Needing credit to survive, they submit to the
creditor's demands and are often weakened as a result,
shedding workers and services that shrink customers and
income.

The straightforward way to stop usury is to enact a
hard legal limit on the interest rates creditors can
charge borrowers. In the House, several legislators
introduced interest-rate caps, but party leaders would
not let the issue get a roll call vote. Rep. Maurice
Hinchey of New York and co-sponsors proposed an
interest-rate cap of 18 percent, the same ceiling
enacted years ago for credit unions. "Offering the
amendment raised a lot of anxiety on the part of a lot
of people," Hinchey said.

"It was withdrawn because it had no possibility of
success and it would have put a number of people in a
tough situation. We had to back off."

A roll call on usury would have compelled legislators
to choose between their constituents and their bankers.
Rep. Donna Edwards of Maryland proposed a tougher
ceiling on interest rates, but the House rules
committee rejected her amendment. "Our constituents are
so angry with the banks," she observed, "siding with
credit-card companies would not be helpful to me, and I
expect that's true in other districts." Bankers are
contributors, so this is what members call "a money
vote." A consumer lobbyist explained. "Let's face it,"
he said. "The main reason lots of members get on the
House Financial Services Committee is because they want
to raise money from the financial industry."

In the Senate, Dick Durbin of Illinois, the majority
whip who rounds up votes for the party, introduced his
own usury bill--a cap of 36 percent including the non-
interest fees and charges. Durbin's bill also empowered
state governments to set lower limits. The Consumer
Federation of America endorsed it, but the consumer
lobbyists asked Durbin not to have a roll call on his
measure because it might reveal their weakness.

Nevertheless, the redoubtable Bernie Sanders of Vermont
demanded a vote on his bill--an interest-rate cap of 15
percent.

"When banks are charging 30 percent interest rates,
they are not making credit available," Sanders said.
"They are engaged in loan sharking." Sanders lost, 33
to 60. Twenty-one Democrats voted with the sharks.
Senators Carper, Cantwell, Byrd, Bingaman, Bayh,
Baucus, Akaka, Warner, Tester, Stabenow, Specter,
Shaheen, Pryor, Ben Nelson, Bill Nelson, Murray,
Lincoln, Landrieu, Kaufman, Johnson, Hagan.

The scandal of "payday" lending is being confronted by
numerous state legislatures, but the issue stalled out
in Congress. The industry pursued a race-based lobbying
strategy that targeted black and Hispanic
representatives with this pitch--poor people need these
loans; don't mess with them. Rep. Luis Gutierrez of
Illinois proposed a bill that usurers found
acceptable--an interest rate cap of 390 percent.

Standing With the Sharks

Perhaps the most revealing moment for Democratic
timidity was the Senate roll call to authorize
bankruptcy judges to intervene on home foreclosures and
reduce the burden for failing homeowners. If the
bankers refused to make a deal, the debtors could take
them into bankruptcy court and hope for better terms.
This single reform would shift the balance of power
modestly from creditors to debtors and save at least
1.5 million families from foreclosure, reformers
estimated. The measure passed easily in the House, but
was defeated by the Senate.

Bankruptcy reform lost because twelve Democrats joined
the Republicans to vote for bankers and against
embattled families. Senators Baucus, Bennet, Byrd,
Carper, Dorgan, Johnson, Landrieu, Lincoln, Ben Nelson,
Pryor, Specter, Tester.

Dick Durbin could not conceal the bitter aftertaste. He
told a hometown radio interviewer: "Hard to believe in
a time when we're facing a banking crisis that many of
the banks created--they are still the most powerful
lobby on Capitol Hill. And frankly, they own the
place."

Durbin's disappointment may have included the former
Illinois senator whom he had championed for president.
Barack Obama took a walk on reform. Last year as a
candidate, Obama declined to support the bankruptcy
provision for the financial-bailout legislation, but he
promised reform groups he would support it if elected.
The White House wouldn't let reformers include it in
the stimulus package or in Obama's first budget. The
White House suggested the issue could proceed as a
stand-alone measure (guaranteed to fail). On this
important reform, the president stands with the sharks.

The Democratic Party ignores its left-liberal-
progressive base with some regularity because it knows
it can. Politicians understand they will suffer no
consequences afterward. The galaxy of mediating
organizations, including organized labor, that
surrounds and supports the party may stomp and holler,
but they do not attempt any retribution that might
alter their relationship with power. Reform
organizations will not withdraw their support, either
money or rank-and-file voters. Nor will they seek to
punish any of the wayward Democrats who regularly vote
against them with opposition at the next election. The
"white hat" reformers are Washington insiders
themselves, with a seat at the table and influence on
the substance of the party's agenda. They do not want
to put their status at risk. Politicians know this from
long experience. So do the reformers.

The warped dynamics of the Democratic Party may have
sufficed when the GOP was ascendant and the goal was
restoring a Democratic majority. But now the majority
party resembles a dysfunctional family, badly in need
of outside intervention. I say this with sympathy,
having known and admired many of the reform activists
for many years. Some of them are suffering from a
political version of the Stockholm syndrome. Their good
intentions are brutally compromised by identifying with
the limited imagination and nerve of the Democratic
Party.

In some ways, the politicians are prisoners too--
captives of the money politics and the expensive mass-
marketing that requires them to raise so much money and
thus rely on the moneyed interests. Representatives and
senators know how the system works and what they need
to do to survive. Now and then, they may try to win one
for the folks, but mostly they are resigned to the
confinements of the status quo. So long as activist
groups will make no attempt to break out of this
pattern or penalize incumbents for disloyalty, the
party will continue to stiff the faithful.

Moral Awakening

Given all the adversities facing the country, I
conclude that meaningful "intervention" is plausible
only if it originates with people at large who are more
distant from power. I envision the intrusion coming
from many "independent formations" free to ignore
Washington's insider routines and mobilized by citizens
on behalf of their own convictions, their common-sense
ideas of what needs to be accomplished. This
alternative path is a central theme of my new book,
Come Home, America. I describe (somewhat wishfully) how
self-directed organizations might develop the power to
break through regular politics and overcome the usual
barriers.

These groups could function, not as a third party nor
as standard "issue" advocates, but as a mixture of
these capabilities. They could act like free-roaming
guerillas who educate and agitate; like a political
party that selectively destabilizes safe-seat
incumbents by entering party primaries or running
independent challengers; like a representative
organization that can demand political relations
through direct confrontations or even civil
disobedience. This development sounds implausible, I
know, especially in Washington. But our crisis demands
a more aggressive response from citizens--something
that threatens the power of both parties and makes them
insecure.

As it happens, a rough facsimile of what I envisioned
is arising now in the politics of financial reform. A
network of fourteen community organizations, based in
cities from Boston to Washington, DC, and across North
America, has come together in alliance and intends to
force a moral awakening on the narrow thinking of the
status quo. These citizens are developing a political-
action agenda around one theme--usury--as the efficient
expression of the abuses and injustices associated with
banking and finance. These are interfaith organizations
affiliated with the Industrial Areas Foundation and
composed of citizens who are white and black, affluent
and working poor, whose local organizations are based
in churches and synagogues, Catholic, Protestant,
Jewish, Muslim and others.

Usually, their political action is local and succeeds
regularly in building relations with public officials
that produce real change in communities. This time,
given the crisis, these IAF groups are attempting
something they have not done before--building the voice
and influence to join the national debate and change
its terms. I sat in on one of their organizing meetings
near Baltimore and was asked to contribute my views on
the shape of the problem.

"Are you ready to be born again? And again? And again?
Do you have the imagination? Do you believe it?" The
call was from the Rev. Hurmon Hamilton of the Roxbury
Presbyterian Church in Boston, and he inspired the 100
or so community leaders. "Faith is the substance of
things hoped for," Hamilton declared, "the evidence of
things unseen."

Outlawing Usury

The Rev. David Brawley of East Brooklyn Baptist
described a preliminary statement of basic principles.
"Reasonable interest rates," he said. "In this
financial culture, the nation will return to a time-
honored, indeed ancient, practice: the law against
usury. Financial institutions and mechanisms that
participate in this culture will agree to a maximum of
9 percent interest or so. This was the usual state-
mandated rate before the repeal."

Brawley described other principles with radical
implications. "The lender holds the loan," he
explained. "The financial institution that makes a loan
holds the loan for its duration. The borrower and
lender enter into a long-term relationship that ends
when the loan is fully repaid. This is the fundamental
starting point for any return to accountability." That
statement of principle challenges the market
securitization of mortgages that falsely claimed to
reduce risk by dispersing it among many investors. The
process instead left no one responsible for sound
lending and thus multiplied the costs of failure.

Brawley's final principle was perhaps most threatening
to the existing order. "The federal government insists
on these core characteristics as the criteria for all
further bailout funding. Banks that wish to borrow from
the government must accept these simple standards [and]
provide consumers with an alternative to the current
monopoly of financial transactions dominated and still
dictated by the same fifty financial institutions that
caused the crisis."

In other words, the social standard of usurious
practices should define which banks and financial firms
are eligible to participate in all forms of government
aid and protection. Why should taxpayers finance the
usurers who are injuring the society? The government's
undiscriminating approach to aiding banks implicates
everyone in supporting the usury. So do the banks and
brokerages that collect people's savings and channel
the money into usurious practices that produce greater
returns by ruining more borrowers. The moral standard
poses difficult questions for everyone, not just
bankers and politicians.

Arnold Graf, national organizer for the IAF, argues
that the moral question can lead people to confront a
deeper debate about the future. "What is the kind of
society we want to have?" Graf asked. "That's really
what we want to talk about--transforming the society.
We're not going to get transformation form the
president and Congress. It can only come from the
people themselves."

These IAF organizations expect to try different tactics
to spread the message and engage the people with power
who make decisions. That means directly confronting
elected representatives but also the banking
institutions with famous names. The alliance hopes the
moral principles will mobilize people of faith but also
students and workers and investors. Following the
example of the civil rights movement, people of
conscience have to find ways to turn up the heat on the
established order and discomfort the silent citizens
who are passive and indifferent. This effort, Graf
assumes, will probably take years, not months. Leaders
of the community organizations are aware of the risks.
They are attempting a leap into the unknown and they
might fail. No one listens, nothing changes. They
accept the risk because they too have asked Hillel's
question. If not now, when?

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National affairs correspondent William Greider has been
a political journalist for more than thirty-five years.
A former Rolling Stone and Washington Post editor, he
is the author of the national bestsellers One World,
Ready or Not, Secrets of the Temple, Who Will Tell The
People, The Soul of Capitalism (Simon & Schuster) and,
most recently, Come Home, America

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