This really happened. In the eighth grade, prodded by Ms. Spiver, an enthusiastic teacher with an enlightened vision for an open classroom, I had the opportunity to research different governing systems. I chose communism because the name sounded cool and appeared to frighten everyone. I read about Marx and Lenin and the proletariat of the state and the main idea which I glommed was to ensure everyone’s basic needs were met. This seemed grand, generous and even beautiful. I quoted the Encyclopedia Britannica at length, and with a flourish, scribbled out three pages in long hand, ending the paper with a makeshift version of the iconic hammer and sickle.
I thought Ms. Spiver would be proud.
The next day I was called into a parent/teachers conference. This was in Raleigh, North Carolina circa 1976 when the rabid anti-communist Senator Jesse Helms graced the Channel six news editorial spot which my father listened to every. single. night.
Ms. Spiver was all ‘tender mercies!’ and ‘Lord child!’ and ‘where did you get such ideas?’ and I wasn’t sure if she was as concerned about my paper and my education as the possibility that Mr. Creigh, who substituted as an insurance agent on days when he wasn’t playing the principal, might take serious offense. But I explained, and even defended as best I could the idea of equality, and everyone getting what they needed, these all seemed like fine goals. What was the problem? Ms. Spiver, to her credit, did not try to correct my initial interpretation, but merely advised that my opinion on the matter was somewhat out of step with the adult population of Raleigh, North Carolina circa 1976. Mom and dad ushered me home, silent in their Buick. Dad finally parked the car in the lot and turned and proceeded to give me the low down. “Communists are bad because they represent a totalitarian system. They don’t allow freedom. You understand?”
I nodded my head.
“Okay.” That sounded like something to avoid. And the tone in my father’s voice was enough for me to forget my flirtation with alternate political systems until high school when we began looking at the social democratic governments, and I found myself once again intrigued by the idea that a government would be based on people getting what they absolutely needed; regardless of their jobs, social stations or life situations.
Denmark, Finland, Sweden, England, to a lesser extent, Germany and Spain. If all these countries pursued such programs, why didn’t we?
My father, with the patience of Job, once again explained what he thought should have been obvious.
“What if I just gave you a dollar every week instead of letting you earn a dollar by mowing the lawn? Hmmmm?”
“I’d have a dollar but I wouldn’t have to mow the lawn.”
Yes, he conceded, okay, but that’s not the point. The point is if you give people something for nothing they’ll take advantage of it. Like all those welfare queens.
By this time, Ronald Reagan was running for high office and was denouncing shady welfare queens that rode around in Cadillacs and bought caviar with tax payer’s money. This activity rankled the hell out of Jesse Helms who never missed an opportunity to denounce the welfare moochers.
Do you want to be a welfare queen?
I decidedly did not want to be a welfare queen. I gathered from my father’s tone that I was not supposed to like the idea of riding around in a Cadillac, eating caviar at the tax payers’ expense, no matter how much fun it might appear.
By the time I entered college, Reagan was in his second term. Taxes had been slashed and the poorer residents of mental homes were dumped onto the city streets. Despite the loss of tax revenue, billions were being funneled into such patently absurd pursuits as an armed space shield; a so called ‘star wars’ shield that would provide cover for the Western Hemisphere by shooting down missiles aimed to blow up our cities. Since there were none and since billions were being funneled into a useless and unworkable program while the homeless and mentally handicapped were left to fend for themselves, (many times I stood in line with them at the local 7-Eleven), I wrote a few college paper editorials suggesting this kind of activity was ill-advised. I proudly signed my name.
My college Spanish teacher, a middle aged Cuban exile, caught up with me one day.
“I have read what you have written,” she whispered, “You are part of this nuclear freeze movement, too, no?”
“Yes.” I said. Sure I was. Who wouldn’t be opposed to nuclear weapons lying around waiting to obliterate the world 200 times over?
“Are you a communista?”
Of course I wasn’t a communista! What had that to do with the nuclear freeze movement? But, for her, the nuclear freeze movement was loaded with fellow travelers and communist sympathizers and what not. I tried to ease her mind by telling her I wasn’t a communist, closer to a democratic socialist, really. This did not appear to help matters.
“You know I come from Cuba. There, when Castro came to power, he forced my family into exile. We had a mansion and servants in Cuba, but when I came to this land, I had to cut my hair and sell it, just to survive. Can you imagine?”
I really couldn’t. “So you were very rich,” I said, “That must have been nice.”
“They stole everything!”
“Right. But now Cuba has much better infant mortality and death rates. It has one of the best medical systems even by Western standards. Cuban doctors help poor people all over the world.”
“So you are a communista!”
“No, I’m not. If I’m anything, I’m a social democrat, like in Finland.”
“It’s the same.”
“No, they’re really different.”
And so I went on to explain to her that one could be a social democrat without falling in lockstep with state run economies like in Cuba or the Soviet Union. In fact, one of the best examples of social democracy operates as the capitalist heart of Europe: Germany. “They have what they like to refer to as a social market economy. They try to combine the virtues of a market system with the virtues of a social welfare system. You can get a free education, even free higher education, free healthcare and free retirement. Some of your basic essentials are guaranteed by the government, but other stuff, like where you work or what you make is dictated by a private sector economy. Of course, you pay taxes for these things, but the government operates to redistribute the money so it benefits everyone. That is social democracy in a nutshell.”
“It will never work,” she advised me, predicting Germany’s downfall by the end of the decade.
That was 1987. Germany’s still around. It’s 2015. Germany still provides free healthcare, free retirement and free higher education and it is still one of the strongest economies in Europe. Our economy, conversely, is dogged by huge gaps of inequality, a dysfunctional healthcare system moderately improved by the ACA, insanely expensive higher education costs, and a retirement system whose paltry offerings are even now threatened by reactionary politicians. Our incarceration rate is the highest in the world. Our homicide rate is one of the highest. Our infant mortality rate is higher than Cuba’s and is comparable to Serbia. You read that right, Serbia. None of these things are natural or necessary. They are by design because we refuse to grow up like the rest of the civilized Western world and insist on the fairy tale version of capitalism that doesn’t require any funding for public infrastructure or social services beyond the absolute bare essentials. The only thing we want to pour money into is our vastly over sized military which has caused many more problems in the last few decades than it has solved.
The majority of the Western industrialized world embraces some form of socialized democracy. In our own country the most successful government programs are inherently socialized: Medicare, Social Security. And, of course, our own Defense Department is an almost entirely socialized bureaucracy. We have patches of socialism all over the place, but the rightwing has done an excellent job demonizing the term. In fact, the last time someone claiming to be a socialist ran for President was nearly a 100 years ago. His name was Eugene V. Debs. He famously said when he was convicted of violating the Sedition Act in 1918, that “while there is a lower class, I am in it; while there is a criminal element, I am of it; while there is a soul in prison, I am not free.” Ringing words that beautifully encapsulate a social democrat’s world view.
It’s become increasingly obvious that a strictly free market agenda is disastrous for a people and an economy. One only need look at Kansas under Brownback’s ideological leadership. The state’s surplus has been turned into a catastrophic black hole of debt through a combination of tax cuts for the wealthiest and slashing of public funds. One could see the same disastrous pile up under George W. Bush’s leadership.
The Spanish teacher who accused me of being a communist told me that I needed to ‘grow up.’ The nice thing about Bernie Sanders candidacy is that it is already grown up. It assumes responsibility for everyone in the nation, not just those that manage to make the cover of Forbes. He has tirelessly advocated for the poor and the underclass and, unlike the vast majority of American politicians, assumes it’s okay to travel coach class. But don’t take it from me that Sanders knows what he’s talking about or that social democracy is a mature governing principle. Take it from that flagship of capitalism, the Economist. In a 2013 article, that magazine declared the social democratic Scandinavian countries, “probably the best governed in the world.”
So there’s no need to carry on with this charade that the ‘socialist’ option cannot win. We can. Actually, in many areas, we already have. Si, se puede, baby. The only real question is, how soon before the rest of us grow up?
The idea was simple. Create a clear rule, a ‘bright line’, that bans financial institutions from trading publicly protected and subsidized funds. That means Banks, like Bank of America, which is FDIC insured, would not be allowed to reap ridiculous profits (or huge losses) by trading on their funds: funds that are guaranteed by the Federal Reserve, that is, backed by little ole tax payers you and me.
The reason for the rule is equally simple: History. During the bad old days that led up to the Great Depression, no such firewall existed and banks were notoriously over leveraged. According to the Library of Congress, “After the Great Depression, Congress examined the mixing of the “commercial” and “investment” banking industries that occurred in the 1920s. Hearings revealed conflicts of interest and fraud in some banking institutions’ securities activities. A formidable barrier to the mixing of these activities was then set up by the Glass–Steagall Act.” The Glass Steagall act was an attempt to save capitalism from its own excesses. One of the principle things the act did was introduce the separation of the bank types according to their business (commercial and investment banking). It also founded the Federal Deposit Insurance Corporation (FDIC) for insuring bank deposits.
The repeal of provisions of the Glass–Steagall Act by the Gramm–Leach–Bliley Act in 1999 effectively removed the separation that previously existed between investment banking which issued securities and commercial banks which made money through deposits. The deregulation also removed conflict-of-interest rules that had prevented investment bankers from serving as officers of commercial banks. It was the repeal of these prohibitions that contributed to the 2007-2008 economic meltdown in the U.S. allowing main street depositors’ money to flow into risky investments and exotic financial instruments like Credit Default Swaps (CDS) that confused even some of the top experts in the country. Some of these investments –like Credit Default Swaps– were nothing more than insurance policies written as financial instruments. In other words, bets that a particular investment would or wouldn’t fail, and payouts occurring if they failed; all of this outside the scope of traditional commercial financial or insurance regulation.
On January 21, 2010, President Barack Obama proposed bank regulations similar to some parts of Glass–Steagall in limiting the trading and investment capabilities of commercial (deposit) banks. This proposal was signed into law as the Dodd-Frank Act. The Volcker Rule, named after Paul A. Volcker, the former chairman of the Federal Reserve, was a small, but essential part of the act. It was meant to ban financial institutions that are protected and subsidized by the federal government (FDIC insured) from trading for their own account. That is: Traders shouldn’t speculate for their own personal gain using the money you and I pay in taxes. After the Dodd-Frank Act containing the Volcker Rule was passed, the SEC and banking regulators were required to actually implement Sections 619 and 620 through regulations of the Dodd-Frank Act (containing the Volcker Rule).
Well, the SEC/banking regulators have proposed their regulations for implementing the Volcker Rule and it is being universally panned as a bloated monstrosity, a disaster. According to Jesse Eisinger over at Pro Publica, “bank lobbyists with complicit regulators and legislators took a simple concept [the Volcker Rule] and bloated it into a 530-page monstrosity of hopeless complexity and vagueness. They couldn’t kill the rule. Instead, they are getting Congress and regulators to render it morbidly obese and bedridden. Of course, that’s no accident. The biggest banks, which are in business today only because taxpayers bailed them out, want to protect their valuable franchises.”
Now whenever a federal agency proposes a substantive new regulation, by law it is required to seek public comment first. Normally the only parties that respond to agency comment requests are the companies that are affected by the regulations, and their attorneys (i.e. lawyers at the investment banks, in this case). As you might guess, their comments are always critical of regulation. But this time things are different. The Volcker Rule’s implementation was so egregiously awful that our friends at Occupy Wall Street took notice. A small subset of the Occupy folks have rechristened themselves, Occupy The SEC. They have written a 325 page comment to the SEC’s bloated implementation of the “Volcker Rule” that is as smart and sharp as anything you might expect from a Joseph Stiglitz or Paul Krugman. “it’s pretty clear, from reading the letter, that the people who wrote it are whip-smart and extremely talented.” Says Felix Salmon of Reuters, “its main authors are worth naming and celebrating: Akshat Tewary, Alexis Goldstein, Corley Miller, George Bailey, Caitlin Kline, Elizabeth Friedrich, and Eric Taylor.”
I haven’t read the entire 325 page letter yet, but what I have perused is impressive. I personally love how the Occupy SEC folks predicate the entire letter on the Volcker Rule with a footnote reference to their own declaration:
The first line of their letter reads: “The United States aspires to democracy, but no true democracy is attainable when the process is determined by economic power.” All the rest of their arguments, in some cases, incredibly detailed arguments, follow from this main premise: people come first. I’ll list a couple of tidbits that I thought worth savoring.
“Securities and Exchange Commission Chairman Mary Schapiro told the Financial Services Committee that, “[w]e have no interest in pursuing activity where people are intending to provide market-making and get it wrong.” The banking lobby was undoubtedly heartened by this frank admission of regulatory forbearance. Even so, the Securities and Exchange Commission (SEC) and the other Agencies are reminded that Section 619 requires strict compliance and imposes strict liability. Nowhere does the statute forgive “well-intentioned” breaches of the law.”
Indeed, why should ‘intentions’ enter into it? How often does a speeding motorists get to plead that they didn’t ‘intend’ to speed?
Here’s another noteworthy admonishment:
“The Proposed Rule also evinces a remarkable solicitude for the interests of banking corporations over those of investors, consumers, taxpayers and other human beings. In their Overview of the Proposed Rule, “the Agencies request comment on the potential impacts the proposed approach may have on banking entities and the businesses in which they engage,” but curiously fail to solicit comment on the potential impact on consumers, depositors, or taxpayers.… The Agencies seem to have lost sight of the fact that “interested persons” could include human beings, and not just banking corporations.”
Corporate banking interests are paramount for the SEC, superseding day to day human beings who must live and die because of the fallout /and or failure of such regulations.
“The “invisible hand of the free market,” that darling cherub of neoliberal economics, will likely push much of the current proprietary trading into the folds of hedge funds or traditional investment banks, not eliminate them outright (assuming, of course, that such activities actually add productive value to the economy). The Volcker Rule simply removes the government’s all-too-visible hand from underneath the pampered haunches of banking conglomerates.”
Translation, if you want to trade risky financial instruments, have at it, but don’t expect US tax payers to bail you out. You can be a hedge fund or a traditional bank (foregoing financially insane instruments like CDSs), but you can’t be both.
You can read the full text of the comment letter here (pdf).
Here are the steps the Occupy SEC folks recommend should you wish to write your own letter:
Read the Congressional Record from July 15th, 2010 where Sens. Merkley and Levin describe the Volcker Rule. (pdf here)
Read the statutory text for the Volcker Rule (part of the Dodd-Frank Act) here.
Read the implementation of the statute, which is the Volcker Rule Text, all 500+ pages of it (don’t worry, it’s double-spaced, pdf) here.
To send in your comment letter, here are the directions for electronic or paper comment submissions. Good luck and keep us posted!
As always, APV thanks our friend, activist and writer Jack Johnson for contributing his work to our blog.